You have been given the probability distribution of returns for Stocks A and B in the table below. If you form a portfolio by investing 50 percent of your money in Stock A and 50 percent in Stock B, calculate the standard deviation of your portfolio? State of Economy Probability of State Return of Stock A Return of Stock B 1 0.05 20% 10% 2 0.15 0% 25% 3 0.25 -10% 30% 4 0.20 25% 20% 5 0.35 15% -10%

A. 9.75 percent B. 13.42 percent C. 11.06 percent D. 7.27 percent

Project P costs $15,000 and is expected to produce benefits (cash flows) of $4,500 per year for five years. Project Q costs $37,500 and is expected to produce cash flows of $11,100 per year for five years. Calculate each project’s (a) net present value (NPV), (b) internal rate of return (IRR), and (c) modified internal rate of return (MIRR). The firm’s required rate of return is 14 percent. If the projects are independent, which project (s) should be selected? If they are mutually exclusive projects, which project should be selected? Explain.