2. GE is considering a project which lasts only one year. The project's cost is $16 million. The cash flow of the project has the following joint distribution with the market portfolio Market Probability Cash flow Next Market Net Return Scenario Year of Great Good Bad 0.25 0.50 0.25 GE's Project S37.3 million $26.3 million $23.3 million 40 20 -20 Also, the risk-free interest rates 6%. i) Use direct tracking method to work out: the tracking portfolio, the PV of the project, the NPV, the expected (required) return of the project, the actual return of the project (IRR), the beta of the project's expected return. Plot the expected return and actual return in Mean return-Beta diagram and comment. i) Use certainty equivalent method to calculate the cash flow's beta of the project and the project's PV. Is the PV consistent with the result in subquestion i? What is the relationship between the cash flow's beta and the expected return's beta of the project? return's beta you have worked out in subquestion D, usve risk- i) Based on the expected adjusted discount rate method to compute the PV again and verify that the result by this approach is consistent with the ones by the previous two approaches. 2. GE is considering a project which lasts only one year. The project's cost is $16 million. The cash flow of the project has the following joint distribution with the market portfolio Market Probability Cash flow Next Market Net Return Scenario Year of Great Good Bad 0.25 0.50 0.25 GE's Project S37.3 million $26.3 million $23.3 million 40 20 -20 Also, the risk-free interest rates 6%. i) Use direct tracking method to work out: the tracking portfolio, the PV of the project, the NPV, the expected (required) return of the project, the actual return of the project (IRR), the beta of the project's expected return. Plot the expected return and actual return in Mean return-Beta diagram and comment. i) Use certainty equivalent method to calculate the cash flow's beta of the project and the project's PV. Is the PV consistent with the result in subquestion i? What is the relationship between the cash flow's beta and the expected return's beta of the project? return's beta you have worked out in subquestion D, usve risk- i) Based on the expected adjusted discount rate method to compute the PV again and verify that the result by this approach is consistent with the ones by the previous two approaches