Chapter 5 -- Financial Risk and Required Return 5 PROBLEM 1 6 Consider the following probability distribution of returns estimated for a proposed project that 7 involves a new ultrasound machine: 8 State of the Probability Rate of 9 economy of occurrence return 10 Very poor 0.1 -10% 12.00% 11 Poor 0.2 0% 12 Average 0.4 10% 13 Good 0.2 20% 14 Very good 0.1 30% 15 16 a. What is the expected rate of return on the project? 17 b. What is the project's standard deviation of returns? 18 c. What is the project's coefficient of variation (CV) of returns? 19 d. What type of risk does the standard deviation and CV measure? 20 e. In what situation is this risk relevant? 21 22 ANSWER 23 24