Scribd Logo
Upload

Welcome to Scribd!

  • MR Smart Has 75 000 Invested in Relatively Risk Free Assets Returning

    Uploaded by

    Amit Pandey
    34 views1 page
    Mr. Smart has €75,000 invested at 10% annual return. A friend proposes investing the full amount in a business venture with uncertain but projected returns. There is a 20% chance of €10,000 annual return, 60% chance of €30,000, and 20% chance of €50,000. Return durations are likely to be 5 or 7 years varying by return amount. The question asks to calculate the best and worst likely returns and their probabilities, and to determine the expected net present value of investing in the project.

    Original Description:

    upload

    Original Title

    Mr Smart Has 75 000 Invested in Relatively Risk Free Assets Returning

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    Mr. Smart has €75,000 invested at 10% annual return. A friend proposes investing the full amount in a business venture with uncertain but projected returns. There is a 20% chance of €10,000 annual return, 60% chance of €30,000, and 20% chance of €50,000. Return durations are likely to be 5 or 7 years varying by return amount. The question asks to calculate the best and worst likely returns and their probabilities, and to determine the expected net present value of investing in the project.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    34 views1 page

    MR Smart Has 75 000 Invested in Relatively Risk Free Assets Returning

    Uploaded by

    Amit Pandey
    Mr. Smart has €75,000 invested at 10% annual return. A friend proposes investing the full amount in a business venture with uncertain but projected returns. There is a 20% chance of €10,000 annual return, 60% chance of €30,000, and 20% chance of €50,000. Return durations are likely to be 5 or 7 years varying by return amount. The question asks to calculate the best and worst likely returns and their probabilities, and to determine the expected net present value of investing in the project.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    of 1

    Solved: Mr Smart has 75 000 invested in relatively risk free

    assets returning

    Mr Smart has €75,000 invested in relatively risk-free assets returning 10 per cent per year. He
    has been approached by a friend with a 'really good idea' for a business venture. This would
    take the whole of the €75,000. Market research has revealed that it is not possible to be exact
    about the returns of the project, but that the following can be inferred from the study:

    - There is a 20 per cent chance that returns will be €10,000 per year.

    - There is a 60 per cent chance that returns will be €30,000 per year.

    - There is a 20 per cent chance that returns will be €50,000 per year.

    - If returns are €10,000 per year, there is a 60 per cent chance that the life of the project will be
    five years and a 40 per cent chance that it will be seven years.

    - If returns are €30,000 per year, there is a 50 per cent chance that the life of the project will be
    five years and a 50 per cent chance that it will be seven years.

    - If returns are €50,000 per year, there is a 40 per cent chance that the life of the project will be
    five years and a 60 per cent chance that it will be seven years.

    Assume that cash flows occur at the end of each year.

    (a) Calculate the worst likely return and the best likely return on the project, along with the
    probabilities of these events happening.

    (b) Calculate the expected net present value of the investment.

    Mr Smart has 75 000 invested in relatively risk free assets returning

    ANSWER
    https://solvedquest.com/mr-smart-has-75-000-invested-in-relatively-risk-free-assets-returning/

    Reach out to freelance2040@yahoo.com for enquiry.


    Powered by TCPDF (www.tcpdf.org)

    You might also like