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johnpaech johnpaech
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Posts: 1098
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6 years ago
Which pharmaceutical company faces less risk?
Textbook 
Corporate Finance: The Core

Corporate Finance: The Core


Edition: 4th
Authors:
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wrote...
#1
6 years ago
Little Cure, because it has a lower standard deviation of expected net income.

Big Cure
expected payoff = prob of payoff × amount if successful
= .5 × $1 billion = $500 million
Standard deviation =   = 500 million

Little Cure
expected payoff = prob of payoff × amount if successful
= .5 × $1 billion = $500 million
Standard deviation for one drug=   = 50 million

Standard deviation(all drugs) = SD(one drug)/  = 50/  = 15.81 million
johnpaech Author
wrote...
#2
5 years ago
You took a load off my back, thanks for answering correctly
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