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B6. (Expected return and risk) Procter & Gamble is considering three possible capital investment projects. The projected returns depend on the future state of the economy as given here.

State of the Probability of Projected Return
Economy Occurance 1 2 3

Recession 0.1 9% 3% 15%
Stable 0.7 13% 10% 11%
Boom 0.2 17% 22% 5%

a. Calculate each project's expected return, variance, and standard deviation.

b. Rank the projects on the basis of (1) expected return and (2) risk. Which project would
you choose?

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