Question

1)Case Study -- ACC, ECC and BCC are three cement companies. ACC has a small capacity and hence its earnings improve dramatically after cement prices cross a threshold price. ECC, on the other hand, has a very efficient process and hence its earnings improve sharply with any rise in cement prices. The biggest of them all, BCC, is not so sensitive to cement prices, thanks to its size. In other words, BCC's bottom line moves in a more sober manner to the changes in cement prices. The earnings of these companies are sensitive only to cement prices. Hence, cement prices determine the returns from investing in these stocks. Mr. Dinesh Investor needs to pick the best investment option from these three companies. Luckily, a cement expert and a stock market analyst have made life for our friend a little simple. The cement expert has assigned the following probabilities for the change in cement prices over last year. The stock market analyst has given his assessment of the expected returns from these three stocks for the respective changes in cement prices.
Event Probability RETURNS
ACC ECC BCC
5% decline 20% –5% 0% 5%
Flat 30% 5% 5% 5%
5% increase 40% 25% 20% 15%
05% increase 5% 35% 30% 25%​

Answer 1

Answer:

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