Question 1 (25 marks)

(a) How much would you have to deposit into a savings account that earns 2% interest compounded annually, to have a balance of $2,000 at the end of four years, if you make no withdrawals? (3 marks)

(b) If interest is earned at the rate of 5%, compounded annually, how long would it take an investment to: (i). double in value? (ii). triple in value? (6 marks)

(c) Suppose ABC Corporation has made the following estimates of the rates of return on two possible projects, and probabilities for pessimistic, most likely, and optimistic results:

	PROJECT A	PROJECT B
Annual rate of return	Probability	Probability
pessimistic	20% 0.15	15% 0.30
most likely	25% 0.50	25% 0.50
optimistic	30% 0.35	35% 0.20

(ii) Determine the expected value of return for each machine. (4 marks)(i) What are the least likely rates of return for the two projects? (2 marks)

(iii) Calculate the standard deviation of the rates of return for the two projects. (6 marks)

(iv) Calculate the coefficient of variation for the two projects. (2 marks)

(v) Which project will you recommend? Explain why. (2 marks)