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 0.5. The alternative risk-free investment in T-bills pays 3% per year. Required: a. If you require a risk premium of 7%, how much will you be willing to pay for the portfolio? 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? c. Now suppose that you require a risk premium of 12%. What price are you willing to pay? Complete this question by entering your answers in the tabs below. Required A Required B Required C If you require a risk premium of 8%, how much will you be willing to pay for the portfolio? Note: Do not round your intermediate calculations. Round your answer to the nearest whole dollar amount. Price Required A Required B >

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 0.5. The alternative risk-free investment in T-bills pays 3% per year. Required: a. If you require a risk premium of 7%, how much will you be willing to pay for the portfolio? 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? c. Now suppose that you require a risk premium of 12%. What price are you willing to pay? Complete this question by entering your answers in the tabs below. Required A Required B Required C If you require a risk premium of 8%, how much will you be willing to pay for the portfolio? Note: Do not round your intermediate calculations. Round your answer to the nearest whole dollar amount. Price Required A Required B >

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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Consider the following portfolio. You write a put option with exercise price $90 and buy a put with the same expiration date with exercise price $95. a. Plot the value of the portfolio at the expiration date of the options. b. Now, plot the profit of the portfolio. Which option must cost more?
USE EXCEL TO SOLVE THIS PROBLEM AND SHOW THE FORMULA! You are considering investing in a security that will pay you $1,000 in 30 years. a. If the appropriate discount rate is 10 percent, what is the present value of this investment? b. Assume these securities sell for $365, in return for which you receive $1,000 in 30 years. What is the rate of return investors earn on this security if they buy it for $365?
You are considering the purchase of real estate that will provide perpetual income that should average $65,000 per year. How much will you pay for the property if you believe its market risk is the same as the market portfolio’s? The T-bill rate is 6%, and the expected market return is 10.0%.
What is the expected return of a portfolio that has $8,000 invested in S and $2,000 invested in T? The risk-free rate is 6% and the market portfolio's return is 14%. What is the required return of the portfolio if betas for the two portfolio components are 0.6 and 1.3, respectively? Do you expect the investment to be a good one for the coming year? Why or why not? Probability of State of Economy 25% Return if State Occurs State of Economy Stock S Stock T 30% 15% 10% Вoom Normal 50% 15% Recession 25% -10% 13%
You are thinking about investing in a project that will provide you a cash flow of $78922 in 3 years and of $88519 in 4 years. If your required return on investments of this risk is 15.14%, how much are you willing to pay for this opportunity? Round to 2 decimal places. Include a dollar sign ($) or percent (%) as appropriate. Answer:
Suppose that we make contributions to a fund of $125 today and $750 in twoyears for a return of $1000 in one year. First write the Net Present Value as a function of the discount factor ν. Secondly, use the NPV to calculate the yield rate of this investment (select the larger value for i. Finally, explain whether or not this is a good investment for us. Please show all work
You are considering the purchase of real estate that will provide perpetual income that should average $54,000 per year. How much will you pay for the property if you believe its market risk is the same as the market portfolio’s? The T-bill rate is 6%, and the expected market return is 9.0%. Property Value =
(Capital Asset Pricing Model) The expected return for the general market is 10.5 percent, and the risk premium in the market is 6.8 percent. Tasaco, LBM, and Exxos have betas of 0.809, 0.677, and 0.578, respectively. What are the appropriate expected rates of return for the three securities? Question content area bottom Part 1 The appropriate expected return of Tasaco is enter your response here%. (Round to two decimal places.) Part 2 The appropriate expected return of LBM is enter your response here%. (Round to two decimal places.) Part 3 The appropriate expected return of Exxos is enter your response here%. (Round to two decimal places.)
Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $75,000with a probability of 25%, $125,000 with a probability of 50%, or $140,000 with a probability of 25%.The alternative risk-free investment in T-bills pays 4% per year. a) If you require a risk premium of 8%, how much will you be willing to pay for the portfolio?b) What is the Sharpe ratio of the portfolio if you can purchase it at the price calculated above?
Suppose that you currently have $100,000 invested in a portfolio with an expected return of 13% and a volatility of 8%. The efficient (tangent) portfolio has an expected return of 17% and a volatility of 10%. The risk-free rate of interest is 1%. Suppose that you want to keep the expected return equal to the current rate of 13%. Accordingly, the level of risk you can expect is: 1.00% 3.75% 4.75% 5.15% None of the above
You are considering the purchase of real estate that will provide perpetual income that should average $60,000 per year. How much will you pay for the property if you believe its market risk is the same as the market portfolio's? The T-bill rate is 4%, and the expected market return is 12.5%. Property value
A project under consideration has an internal rate of return of 16% and a beta of 0.9. The risk free rate is 6% and the expected rate of return on the market portfolio is 16%. A. What is the required rate of return? B. Should the project be accepted? C. What is the required rate of return on the project if it's beta is 1.90? D. If the projects beta is 1.90 should the project be accepted?

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