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 .5. The alternative risk-free investment in T-bills pays 6% 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.) 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.) c. Now suppose that you require a risk premium of 12%. What is the price that you will be willing to pay? (Round your answer to the nearest whole dollar amount.)

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 .5. The alternative risk-free investment in T-bills pays 6% 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.) 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.) c. Now suppose that you require a risk premium of 12%. What is the price that you will be willing to pay? (Round your answer to the nearest whole dollar amount.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 5P

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