QBUS6320 Tutorial 3
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QBUS6320 Tutorial 3
Problem 1:
You are offered the possibility to invest in one of the following projects:
Project A
Project B
NPV Probability
NPV Probability
1000
1
1200
0.6
1500
0.4
❼ Which project involves more risk?
❼ Which project has a higher expected NPV?
❼ Is it possible to make an investment decision?
Problem 2:
The outcomes and probabilities of 4 alternative projects are given:
Project A
Project B
NPV Probability NPV Probability
0
500
0.5
0.5
200
600
0.4
0.6
Project C
Project D
NPV Probability NPV Probability
100 |
0.1 |
50 |
0.2 |
400 |
0.6 |
400 |
0.7 |
600 |
0.3 |
600 |
0.1 |
❼ Which project is deterministically dominant over another project?
❼ Which project is stochastically dominant over another project? Which kind of domi-
nance (FSD or SSD)?
2022-07-08