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

Naor''s distribution, Naor's distribution is the discrete probability dist...

Naor's distribution is the discrete probability distribution which arises from the following model; Assume an urn contains n balls of which one is red and the remainder is whit

Bayesian confidence interval, Bayesian confidence interval : An interval of...

Bayesian confidence interval : An interval of the posterior distribution which is so that the density of it at any point inside the interval is greater than that of the density at

Clinical vs. statistical significance, Clinical vs. statistical significanc...

Clinical vs. statistical significance : The distinction among results in terms of their possible clinical importance rather than simply in terms of their statistical importance. Wi

Raking adjustments, Raking adjustments  is an alternative to the post strat...

Raking adjustments  is an alternative to the post stratification adjustments in the complex surveys which ensures that the adjusted weights of the respondents conform to each of th

Procrustes analysis, Procrustes analysis is a technique of comparing the a...

Procrustes analysis is a technique of comparing the alternative geometrical representations of a group of multivariate data or of the proximity matrix, for instance, two competing

Mareg, MAREG is the software package for the analysis of the marginal regr...

MAREG is the software package for the analysis of the marginal regression models. The package permits the application of generalized estimating equations and the maximum likelihoo

Describe indirect least squares, Indirect least squares: An estimation tech...

Indirect least squares: An estimation technique used in the fitting of structural equation models. Commonly least squares are first used to estimate reduced form parameters. Usi

Coincidences, Coincidences : Astonishing concurrence of the events, perceiv...

Coincidences : Astonishing concurrence of the events, perceived as meaningfully related, with no apparent causal connection. Such type of events abounds in everyday life and is oft

Buffon''s needle problem, Buffon's needle problem : A problem proposed and ...

Buffon's needle problem : A problem proposed and solved by the scientist Comte de Buffon in 1777 which includes determining the probability, p, which a needle of length l will inte

Hypothesis testing and chi-square tests.., The results of a survey determin...

The results of a survey determined whether the age of a driver 21 years and older has any effect on the number of motor vehicle accidents in which he/she is involved. Question 1:

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