Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $60,000 or $160,000, with equal probabilities of 0.5. The alternative riskless investment in T-bills pays 5%. Required: a. If you require a risk premium of 8%, how much will you be willing to pay for the portfolio? (Round your answer to the nearest dollar amount.) Value of the Portfolio $ 97,345 b. Suppose the portfolio can be purchased for the amount you found in (a). What will the expected rate of return on the portfolio be? (Do not round intermediate calculations. Round your answer to the nearest whole percent.) Rate of return 11% c. Now suppose you require a risk premium of 12%. What is the price you will be willing to pay now? (Round your answer to the nearest dollar amount.) Value of the portfolio $ 94,017

Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $60,000 or $160,000, with equal probabilities of 0.5. The alternative riskless investment in T-bills pays 5%. Required: a. If you require a risk premium of 8%, how much will you be willing to pay for the portfolio? (Round your answer to the nearest dollar amount.) Value of the Portfolio $ 97,345 b. Suppose the portfolio can be purchased for the amount you found in (a). What will the expected rate of return on the portfolio be? (Do not round intermediate calculations. Round your answer to the nearest whole percent.) Rate of return 11% c. Now suppose you require a risk premium of 12%. What is the price you will be willing to pay now? (Round your answer to the nearest dollar amount.) Value of the portfolio $ 94,017

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 4P

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