Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit

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?

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)?