The alternative risk-free investment in t-bills

Assignment Help Financial Management

Reference no: EM131511629

Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $100,000 or $260,000 with equal probabilities of .5. The alternative risk-free investment in T-bills pays 3% per year.

a. If you require a risk premium of 7%, how much will you be willing to pay for the portfolio? (Round your answer to the nearest whole dollar amount. Omit the "$" sign in your response.)

Price $

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? (Round your answer to the nearest whole number. Omit the "%" sign in your response.)

Rate of return %

c. Now suppose that you require a risk premium of 11%. What is the price that you will be willing to pay? (Round your answer to the nearest whole dollar amount. Omit the "$" sign in your response.)

Price $

Reference no: EM131511629

Questions Cloud

Accounting errors are considered accounting changes : Gains are earned inflows that arise from a company's ongoing business activities. Accounting errors are considered accounting changes and treated accordingly.

Interest income is recorded as an operating inflow of cash : An increase in assets would usually show as an outflow in the statement of cash flows. Interest income is recorded as an operating inflow of cash.

What is the maximum level of risk aversion : What is the maximum level of risk aversion for which the risky portfolio is still preferred to bills?

Income statement but never appear on its tax return : Some items appear on a company's income statement but never appear on its tax return. Cash flow from operations is usually more volatile than net income.

The alternative risk-free investment in t-bills : The alternative risk-free investment in T-bills pays 3% per year.

Calculate courtneys taxable income assuming she claims : Calculate Courtney’s taxable income assuming she claims Victor as a deduction (I need to see the separation of “for” and “from” AGI).

What does maria and donna have to include in their income : What does Maria and Donna have to include in their income?

Explain how the amount of interest earned changes : Explain how the amount of interest earned changes in each succeeding 6 dash year 6-year period.

Compute the degree of operating leverage : compute the degree of operating leverage, the break-even point in dollars, and the margin of safety in both dollar and percentage terms.

User Account

All Pages