Optimalf 167
The next step is to add this value to 1. This gives us:
1 +(−.01)=. 99
Last, we take this answer to the power of the probability of its occurrence,
which in our example is .1:
. 99.^1 =. 9989954713
Next, we go to the next scenario labeledTrouble, where there is a .2
loss of $200,000. Our worst-case result is still−$500,000. Thefvalue we are
working on is still .01, so the value we want to divide this scenario’s result
by is still 50 million:
−200, 000
50, 000, 000=−. 004
Working through the rest of the steps to obtain our HPR:
1 +(−.004)=. 996
. 996.^2 =. 9991987169
If we continue through the scenarios for this test value of .01 forf,we
will find the three HPRs corresponding to the last three scenarios:
Stagnation 1.0
Peace 1.004487689
Prosperity 1.000990622Once we have turned each scenario into an HPR for the givenfvalue,
we must multiply these HPRs together:
. 9989954713
*.^9991987169
*^1.^0
*^1.^004487689
*^1.^000990622
1. 003667853
This gives us the interim TWR, which in this case is 1.003667853. Our next
step is to take this to the power of 1 divided by the sum of the probabili-
ties. Since the sum of the probabilities will always equal 1 the way we are