QUESTION THREEA. What is meant by asymmetric information?B. Z Ltd has a K1million bond issue outstanding. If deposits earn 8 percent perannum, calculate the amount that can be deposited annually to a sinking fund inorder to accumulate enough money to retire the entire K1million issue at the endof 20 years.C. Mutale has just borrowed an amount of K5,000 to pay his school fees. The loan isto be repaid in equal installments at the end of each of the next 3 years and theinterest rate is 15%. Mutale is interested to know the repayment implications onthis loan in terms of the total amount that will be paid on the loan and thebreakdown between the principal amount and interest payments over the 3 years.Draw out a table that will help Mutale understand the loan implications.D. Mubita is contemplating on investing in Stocks A and B with the followingprobability distributions of possible future returns:Probability (Pi)0.10.20.40.20.1Page 2Stock A (%)15051025Stock B (%)2010203050Calculate the expected rate of return for each stock. Assuming the Capital AssetPricing Model (CAPM) holds and stock B's beta is greater than stock A's beta by0.27, what is the excess return on the market portfolio?

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A. What is meant by asymmetric information?

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

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