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Should you undertake this trip
Course:- Business Economics
Reference No.:- EM132281327




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You live in Arizona Territory in 1870. You live 200 miles west of Tucson. You have a stock of coyote pelts that you feel could fetch a good price if you can get them to the market in Tucson. The price you can receive for these pelts will be based on the market, and you have estimated an appropriate beta is 1.5. You expect that you'll be able to sell the pelts for $500, but the actual price will depend on the market, as reflected by beta. In order to get to Tucson, you need to buy a horse. There is an old mare for sale for $460. You plan to sell her when you get to Tucson and stay there permanently. You are sure you can sell her for $150 to a friend of yours in Tucson. Assume the risk-free rate is 10% and the market risk premium is 8%. Assume CAPM holds. Assume it will take you exactly one year to get to Tucson (the mare is very slow). Should you undertake this trip, or just stay home?




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