An investment of $18,000 is expected to generate annual revenue of $8,000 throug

Question

An investment of $18,000 is expected to generate annual revenue
of $8,000 throughout life of the investment. The risk is based the life of the
investment. The estimate of probabilities for the duration of the investment is
given in the table below. No matter what the life of the investment might be, there will be no salvage value. Using a value of 15% MARR, compute the risk (standard deviation) associated with this investment.

Life, Years.. 3......4.......5........6
Probability 0.1... 0.4.... 0.3.... 0.2

Explanation / Answer

6 years is the most likely lifespan, so 2 years must be the pessimistic estimate and 9 years must be the optimisticestimate. Since we don

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