Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $150,000 or $290,000 with equal probabilities of .5. The alternative risk-free investment in T-bills pays 6% per year. a. If you require a risk premium of 7%, how much will you be willing to pay for the portfolio? (Round your answer to the nearest whole dollar amount.) b. Suppose that the portfolio can be purchased for the amount you found in (a). What will be the expected rate of return on the portfolio? (Round your answer to the nearest whole number.) c. Now suppose that you require a risk premium of 12%. What is the price that you will be willing to pay? (Round your answer to the nearest whole dollar amount.)
Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $150,000 or $290,000 with equal probabilities of .5. The alternative risk-free investment in T-bills pays 6% per year.
a. If you require a risk premium of 7%, how much will you be willing to pay for the portfolio? (Round your answer to the nearest whole dollar amount.)
b. Suppose that the portfolio can be purchased for the amount you found in (a). What will be the expected
c. Now suppose that you require a risk premium of 12%. What is the price that you will be willing to pay? (Round your answer to the nearest whole dollar amount.)

Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images









