6.1 (Expected rate of return and risk) Carter Inc. is evaluating a security. One year Treasury bills are currently paying 9.1 percent. Calculate the investment’s expected return and its standard deviation. Should Carter invest in this security?
Probability Return
.15 6%
.30 9%
.40 10%
.15 15%
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10‑15. |
(Risk-adjusted discount rates and risk classes) The G. Wolfe Corporation is examining two capital-budgeting projects with 5-year lives. The first, project A, is a replacement project; the second, project B, is a project unrelated to current operations. The G. Wolfe Corporation uses the risk-adjusted discount rate method and groups projects according to purpose, and then it uses a required rate of return or discount rate that has been preassigned to that purpose or risk class. The expected cash flows for these projects are given here:
The purpose/risk classes and preassigned required rates of return are as follows:
Determine each project’s risk-adjusted net present value.
Prepare written responses to the following assignments. |
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