In the table, suppose the equal probabilities for weak economy and strong economy. Security B pays $600 if the economy is week and $0 if the economy is strong. Cash Flow in One Year Security Market Price Today Weak Economy Strong Economy Market index 1000 750 1350 Security B 600 0 Risk-free bond 1280 1350 1350 1) The expected return of security B is %. (Round to 2 decimal places) 2) The risk premium of security B is %. (Round to 2 decimal places) 3) Suppose a new security C has a Market Price Today = 2 * Security B + Risk-free bond, the equal probabilities for weak economy and strong economy. Security C pays $2250 if the economy is week and $1350 if the economy is strong, the expected return of security C is %. (Round to 2 decimal places)
In the table, suppose the equal probabilities for weak economy and strong economy. Security B pays $600 if the economy is week and $0 if the economy is strong.
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Cash Flow in One Year
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Security |
Market |
Weak Economy |
Strong Economy |
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Market index |
1000 |
750 |
1350 |
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Security B |
600 |
0 |
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Risk-free bond |
1280 |
1350 |
1350 |
1) The expected return of security B is %. (Round to 2 decimal places)
2) The risk premium of security B is %. (Round to 2 decimal places)
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3) Suppose a new security C has a Market Price Today = 2 * Security B + Risk-free bond, the equal probabilities for weak economy and strong economy. Security C pays $2250 if the economy is week and $1350 if the economy is strong, the expected return of security C is %. (Round to 2 decimal places) |
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