CONNECT WITH LEARNSMART FOR BODIE: ESSE
11th Edition
ISBN: 2819440196222
Author: Bodie
Publisher: MCG
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Chapter 5, Problem 11PS
Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $150,000 or $150,000, with equal probabilities of 0.5. The alternative riskless investment in T-bills pays 5%. (LO 5-3)
a. If you require u risk premium of 10%, how much will you be willing to pay for the portfolio?
b. Suppose the portfolio can be purchased for the amount you found in (a). What will the expected
c. Now suppose you require a risk premium of 15%. What is the price you will be willing to pay now?
d. Comparing your answers to (a) and (c), what do you conclude about the relationship between the required risk premium on a portfolio and the price at which the portfolio will sell?
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Chapter 5 Solutions
CONNECT WITH LEARNSMART FOR BODIE: ESSE
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