Given $100,000 to invest, what is the expected risk premium in percentage and in dollars of investing in equities versus risk-free T-bills (U.S. Treasury bills) based on the following table? ActionProbabilityExpected ReturnInvest in equities.6$50,000- $30,000$ 5,000Note that Expected Return is in $ terms, not in percentage..4Invest in risk-free T-bill1.0

Investing in equities has two scenarios with 60% an 40% probabilities, and $50000 and - $30000…

Answered: Action Probability Expected Return…

Action Probability Expected Return Invest in equities .6 $50,000 .4 - $30,000 $ 5,000 Note that Expected Return is in $ terms, not in percentage. Invest in risk-free T-bill 1.0

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

Given $100,000 to invest, what is the expected risk premium in percentage and in dollars of investing in equities versus risk-free T-bills (U.S. Treasury bills) based on the following table?

Action
Probability
Expected Return
Invest in equities
.6
$50,000
- $30,000
$ 5,000
Note that Expected Return is in $ terms, not in percentage.
.4
Invest in risk-free T-bill
1.0

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