Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $70,000 or $200,000 with equal probabilities of 0.5. The alternative risk - free investment in T - bills pays 2% per year. Required: If you require a risk premium of 8%, how much will you be willing to pay for the portfolio? 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? Now suppose that you require a risk premium of 12%. What price are you willing to pay?

Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $70,000 or $200,000 with equal probabilities of 0.5. The alternative risk - free investment in T - bills pays 2% per year. Required: If you require a risk premium of 8%, how much will you be willing to pay for the portfolio? 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? Now suppose that you require a risk premium of 12%. What price are you willing to pay?

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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