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  3. 1. a) expect value of $70, standard deviation $50

1. a) Expect Value of $70, Standard Deviation $50.99 b) Expect Value of $70,...

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Finance

1.

a) Expect Value of $70, Standard Deviation $50.99

b) Expect Value of $70, Standard Deviation $60.99

2. A risk-free investment of $10,000 will return 8%. A risky $10,000 investment has a 50%

chance of defaulting and returning only $3,000. What is the expected rate of return on the

risky investment?

a) 31% b) -31%. c) 21%. d) -21%

3. A new business opportunity has a 70% chance of being worth $500,000 next year and a 30% chance of being worth $100,000. The appropriate expected rate of return is 10%.

Refer to the information above. The new opportunity will be financed with a $150,000

bank loan. What rate of return will the levered equity holder earn if the business pays off

only $100,000? Round your answer to the nearest tenth of a percent.

a) -75%. b) -20%. c) -10%. d)-100%

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