Question: Mike Riskless is considering two projects. He has estimated the IRR for each under three possible scenarios and assigned probabilities of occurrence to each scenario.

Mike Riskless is considering two projects. He has estimated the IRR for each under three possible scenarios and assigned probabilities of occurrence to each scenario.

State of Economy	Probability	Estimated BTIRR Investment I	Estimated BTIRR Investment II
Optimistic	0.20	0.15	0.20
Most likely	0.60	0.10	0.15
Pessimistic	0.20	0.05	0.05
	1.00

Riskless is aware that the pattern of returns for Investment II looks very attractive relative to Investment I; however, he believes that Investment II could be more risky than Investment I. He would like to compare the two investments considering both the risk and return on each.

Required:

a. Compute BTIRR under each of the three possible scenarios. For Investment I and Investment II

Optimistic

Most likely

Pessimistic

Part A I did not get it right. Can you please help me?

b. Compute the variance and standard deviation of the IRRs.

This part is correct I got:

Investment I Variance of 10 and standard deviation of 3.16

Investment II Variance of 24 and standard deviation of 4.90

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