Given the following data on two one period capital projects, calculate 1) the expected value of each project's cash flows and 2) the standard deviation of probable cash flows from each project. Indicate which of the two projects would be chosen by a risk-averse decision maker if their prices were the same and they had similar lives.
Definitions:
Interest Payments
Payments made to lenders as compensation for borrowing money, typically calculated as a percentage of the principal amount.
Bondholders
Bondholders are individuals or entities that hold debt securities issued by corporations or governments, entitling them to receive fixed interest payments and the return of the bond's principal upon maturity.
Market Rate
The prevailing interest rate available in the marketplace for securities or loans, which varies based on demand, supply, and economic conditions.
Bond Interest
The periodic payment made to bondholders, typically a fixed rate of interest paid on the bond's face value.
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