Consider the following probability distribution of returns estimated for a proposed project that involves a new ultrasound machine:
|
State of EconomyProbability of Occurrence Rate of Return
|
|
|
Very Poor
|
0.10
|
-10.0%
|
|
|
Poor
|
0.200.0%
|
|
|
Average
|
0.40
|
10.0%
|
|
|
Good
|
0.2020.0%
|
|
|
Very Good
|
0.10
|
30.0%
|
|
- What is the expected rate of return on the project?
- What is the project's standard deviation of returns?
- What is the project's coefficient of variation (CV) of returns?
- What type of risk does the standard deviation and CV measure?
- In what situation is the risk relevant?