Question: You are in the first stages of an analysis of a complex investment opportunity. You don't really know what the annual cash flow will be over the next few years. Your best estimate is that anything in the 1.2 to 3.7 million dollars/year range would be reasonable. Without further information, you assume all results in this range are equally likely. Why? Because when we have no probability information we often just assume the probabilities are equal for all “reasonable” values of the independent variable.

What is the name of the distribution you will use?

Using Excel, make a probability distribution graph. So, x=cash flow and y=probability distribution values (it is called probability density by some authors)? This is a simple graph. You don't need any more data that what is given above. There are several of ways to make this graph, any of which is acceptable. You could use Insert/Picture/AutoShape if you are artistically inclined. Or, you could use a scatter plot. Or you could use a column chart. For the scatter plot, just enter (x, y) points for each corner of the plot. For the column chart, just enter three labels and three f(x) values (two of the "bars" will be of zero height). Whatever method you use, leave some "zero probability" space on both sides of the finite probability range. This helps your reader understand what you are doing. For this assignment, make the x axis run from 0 to 5 million dollars/year.