18) Use the data below and consider portfolio weights of .60 in stocks and .40 in bonds.

Rate of Return
Scenario Probability Stocks Bonds
Recession 0.2 -5% 14%
Normal 0.6 15% 8%
Boom 0.2 25% 4%

a. What is the rate of return on the portfolio in each scenario?
b. What is the expected return and standard deviation of the portfolio?
c. Would you prefer to invest in the portfolio of stocks only or in bonds only?

21) Revenues generated by a new fad product in each of the next 5 years are forecasted as follows:
Year Revenues
1 $40,000
2 30,000
3 20,000
4 10,000
Thereafter 0

Expenses are expected to be 40 percent of revenues, and working capital required in each year is expected to be 20 percent of revenues in the following year. The product requires an immediate investment of $50,000 in plant and equipment.
a. What is the initial investment in the product? Remember working capital.
b. If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firm's tax rate is 40 percent, what are the project cash flows in each year?
c. If the opportunity cost of capital is 10 percent, what is the project NPV?
d. What is the project IRR?

Changes in interest rates represent the type of risk that can be categorized as:
1) Market risk
2) Economics risk
3) Firm-specific risk
3) Unsystematic risk
"You own a portfolio that has 70% invested in asset A, and 30% invested in asset B. Asset A's standard deviation is 12% and asset B's standard devia

You are considering opening a new plant. The plant will cost $100 million upfront and will take one year to build. After that, it is expected to produce profits of $30 million at the end of every year of production. The cash flows are expected to last forever. Calculate the NPV of this opportunity if your cost of capital is

41. Which of the following is the best measure of the systematic risk in a portfolio?
a. variance
b. standard deviation
c. covariance
d. beta
42. The expectedreturn for the asset shown in the following table is 18.75 percent. If the return distribution for the asset is described as below, what is the standard devi

Hello, I want to know how to calculate the risk-adjusted NPV, i dont know what the formula is or how to find it.
I attached a table in my hw, not sure if this is the one which i need to use to find the risk npv.

A 4-year project can be purchased for $10,000. Net cash benefits per year have an expected value of $4,000 and a standard deviation of $2,000. The required rate of return is 10%.
a) Expected NPV of the project.
b) Standard deviation of NPV assuming perfect correlation of cash flows.
c) Standard deviation of

An investment costs $500 and is expected to produce cash flows of $50 at the end of year 1, $60 at the end of year 2, $70 at the end of year 3, and $516 at the end of year 4. What rate of return would you earn if you bought this investment?

Explain the Net Present Value (NPR) concept. What values must the NPR take on for the project to be acceptable at the promise of a return greater than the required rate of return? Contrast this method to Internal Rate of Return.

From the below solution, tell me what the coefficient of variation implies? And would you accept this project or not? Why?
The expected NPV is
E(NPV)= sigma Prob*NPV
= 0.05*(-70) + 0.20*(-25) + 0.50*12 + 0.20*20 + 0.05*30
= 3 (million)
The variance of NPV is
VAR = sigma Prob*[NPV -E(NPV)]^2
= 0.05*(-70-3)^2 + 0.

1) What is the internal rate of return (IRR) for a project whose intitial after tax cost is $5,000,000 and it is expected to provide after tax operating cash flows of ($1,800,000) in year 1, $2,900,000 in year 2, $2,700,000 in year 3, and $2,300,000 in year 4 ?
2) A firm is evaluating a proposal that has an initial investment