Refer to Review given Problem. Power Tech feels comfortable about the probability estimate regarding the change in North American demand.
However, they would like to examine the probability estimate for Asian demand more carefully. Perform sensitivity' analysis on the probability that Asian demand increases.
Try the following values, {0.1, 0.2, 0.3, 0.4, 0.5}, in which 0.3 is the base case value. Analyze the result and give a revised recommendation as to Power Tech's possible partnership.
Problem:
An investment has possible rates of return of 7%, 10%, and 15% over five years. The probabilities of attaining these rates, estimated on the basis of the current economy, are 0.65, 0.25, and 0.1, respectively. If you have ¥10 000 to invest,
(a) What is the expected rate of return from this investment?
(b) What is the variance of the rate of return on this investment?