Assessing return and risk Swift Manufacturing must choose between two asset purchases. The annual rate of return and the related probabilities given in the following table (on page 268) summarize the firm’s analysis to this point.

268 PART TWO Important Financial Concepts

Project 257                                       Project 432
Rate of return     Probability                   Rate of return    Probability
_10%          .01                                10%                       .05
10            .04                                15                         .10
20            .05                                20                         .10
30            .10                                25                         .15
40            .15                                30                         .20
45             .30                                35                        .15
50            .15                                40                        .10
60            .10                                45                         .10
70            .05                                50                        .05
80             .04
100             .01

a. For each project, compute:

(1) The range of possible rates of return

(2) The expected value of return.

(3) The standard deviation of the returns.

(4) The coefficient of variation of the returns.

b. Construct a bar chart of each distribution of rates of return.

c. Which project would you consider less risky? Why?

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