FIN/419 Week 2-Assignments from Readings
Week 2-Assignments from Readings
Chapter 5: Problem 5.3
a. If Sharon were risk-indifferent, which investments would she select? Explain why.
- If she were risk-averse, which investments would she select? Why?
- If she were risk-seeking, which investments would she select? Why?
- Given the traditional risk preference behavior exhibited by financial managers, which investment would be preferred? Why?
Chapter 5: Problem 5.4
a. Determine the range of the rates of return for each of the two projects.
- Which project is less risky? Why?
- If you were making the investment decision, which one would you choose? Why? What does this imply about your feelings toward risk?
- Assume that expansion B’s most likely outcome is 21% per year and that all other facts remain the same. Does this change your answer to part c? Why?
Chapter 10: Problem 10.4
a. Determine the range of annual cash inflows for each of the two projects.
- Do parts a and b provide consistent views of the two projects? Explain.
- Which project do you recommend? Why?