Assume that an entrepreneur has cashflows from two independent investment projects. These two cashflows, namely X1 and X2, follow generalized Wiener processes:

X1 has a drift of 0.5 per year and a variance of 4 per year, while

X2 has a drift of 0.2 per year and a variance of 2 per year.

How much should the entrepreneur's initial cash position be, for the entrepreneur to have a less than 5% chance of a negative cash position in one year's time?

Answer rating: 100% (QA)

To determine the initial cash position for the entrepreneur to have a less than 5 chance of a negati... View the full answer