# Solve clearly.. Consider an investment with uncertain cash flows. The initial cost of the investment is $85,000 in year zero. You estimate three scenarios for the following five years: Most

Solve clearly.. Consider an investment with uncertain cash flows. The initial cost of the investment is $85,000 in year zero. You estimate three scenarios for the following five years:

Most likely came: The project will generate $30,500 in year 1 and it will increase by $500 each year until year 5.

.

Optimistic case: The project will generate $41,000 in year 1 and it will increase by 69% each year until year 5.

Pessimistic case: The project will generate $25,000 in year 1 and it will decrease by 79% each year until year 5.

a. (10 points) Using properties of Beta distribution, calculate expected value and variance for each year’s cash flows (for n=1,2,3,4,5).

b. (5 points) Assuming that periodical cash flows are independent, determine the expected value and the standard deviation of the present worth for this investment using a yearly interest rate

of 21 95 compounded annually.

[. (5 points) Using normal approximation, determine the probability that this investment will yield a negative present worth (Answer format must be x.xx96).

d. (5 points) Find the net present worth at risk (VaR) with a 95% confidence level for the duration of the project.

## Leave a Reply

Want to join the discussion?Feel free to contribute!