solution

The president of the Martin Company is considering two alternative investments,

X and Y. If each investment is carried out, there are four possible outcomes.

The present value of net profit and probability of each outcome follow:

What are the expected present value, standard deviation, and coefficient

of variation of investment X? What are the expected present value, standard deviation, and coeffi cient of variation of investment Y? c. Which investment is riskier?

d. The president of the Martin Company has the utility function U = 10 + 4P – 0.2P2

where U is utility and P is net present value. Which investment should she

choose?