Probability distribution of the net present value, Advanced Statistics

Assignment Help:

Suppose that $4 million is available for investment in three projects.  The probability distribution of the net present value earned from each project depends on how much is invested in each project.  Let It be the random variable denoting the net present value earned by project t.  The distribution of It depends on the amount of money invested in project t, as shown in Table 2 (a zero investment in a project always earns a zero NPV).  Use dynamic programming to determine an investment allocation that maximises the expected NPV obtained from the three investments.

Table

 

Investment (millions)

Probability

Project 1

$1

P(I1 = 2) = 0.6

P(I1 = 4) = 0.3

P(I1 = 5) = 0.1

$2

P(I1 = 4) = 0.5

P(I1 = 6) = 0.3

P(I1 = 8) = 0.2

$3

P(I1 = 6) = 0.4

P(I1 = 7) = 0.5

P(I1= 10) = 0.1

$4

P(I1 = 7) = 0.2

P(I1 = 9) = 0.4

P(I1= 10) = 0.4

Project 2

$1

P(I2 = 1) = 0.5

P(I2 = 2) = 0.4

P(I2 = 4) = 0.1

$2

P(I2 = 3) = 0.4

P(I2 = 5) = 0.4

P(I2 = 6) = 0.2

$3

P(I2 = 4) = 0.3

P(I2 = 6) = 0.3

P(I2 = 8) = 0.4

$4

P(I2 = 3) = 0.4

P(I2 = 8) = 0.3

P(I2 = 9) = 0.3

Project 3

$1

P(I3 = 0) = 0.2

P(I3 = 4) = 0.6

P(I3 = 5) = 0.2

$2

P(I3 = 4) = 0.4

P(I3 = 6) = 0.4

P(I3 = 7) = 0.2

$3

P(I3 = 5) = 0.3

P(I3 = 7) = 0.4

P(I3 = 8) = 0.3

$4

P(I3 = 6) = 0.1

P(I3 = 8) = 0.5

P(I3 = 9) = 0.4


Related Discussions:- Probability distribution of the net present value

Dot plot, The more effective display than a number of other methods or tech...

The more effective display than a number of other methods or techniques, for instance, pie charts and bar charts, for displaying the quantitative data which are labeled. An instanc

Describe meta-analysis, Meta-analysis is the collection of techniques wher...

Meta-analysis is the collection of techniques whereby the results of two or more independent studies are statistically combined to yield the overall answer to a question of intere

Coplot, This is the powerful visualization tool for studying how the respon...

This is the powerful visualization tool for studying how the response relies on an explanatory variable given the values of other explanatory variables. The plot comprises of a num

Differences-in-differences estimator, The estimator of the group by the tim...

The estimator of the group by the time period interaction in a study in which the subjects in two different groups are observed in two different time periods. Normally one of th

Gauss markov theorem, This is the theorem which states that if the error te...

This is the theorem which states that if the error terms in a multiple regression have the same variance and are not corrected, then the estimators of the parameters in the model p

Parks test, The Null Hypothesis - H0: β 1 = 0 i.e. there is homoscedastici...

The Null Hypothesis - H0: β 1 = 0 i.e. there is homoscedasticity errors and no heteroscedasticity exists The Alternative Hypothesis - H1: β 1 ≠ 0 i.e. there is no homoscedasti

Forest plot, A name sometimes given to the type of diagram generally used i...

A name sometimes given to the type of diagram generally used in meta-analysis, in which point estimates and confidence intervals are displayed for all the studies included in the a

Explain lancaster models., Lancaster models : The means of representing the...

Lancaster models : The means of representing the joint distribution of the set of variables in terms of the marginal distributions, supposing all the interactions higher than a par

Disclosure risk, The risk of being able to recognize the respondent's confi...

The risk of being able to recognize the respondent's confidential information in the data set. Number of approaches has been proposed to measure the disclosure risk some of which c

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd