ind the expected value assuming the risk factor is 30 % and the interest rate is 15%, if you will receive $20,000 one year from today. Find the expected value assuming the risk factor is 30 % and the interest rate is 15%, if you will receive $20,000 two years from today.
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Find the expected value assuming the risk factor is 30 % and the interest rate is
15%, if you will receive $20,000 one year from today.
Find the expected value assuming the risk factor is 30 % and the interest rate is
15%, if you will receive $20,000 two years from today.
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- Studies have concluded that a college degree is a very good investment. Suppose that a college graduate earns about 75% more money per hour than a high-school graduate. If the lifetime earnings of a high-school graduate average $1,200,000, what is the expected value of earning a college degree?Stock H has a beta of 1.6, while Stock L has a beta of 0.7. If investors’ aversion to risk increased... a. the risk premiums of Stock H and L would increase by the same amount. b. the risk premium of Stock L would increase by more. c. the risk premiums of Stock H and L would remain unchanged. d. the risk premium of Stock H would increase by more.Consider an economy where Capital Asset Pricing Model holds. In this economy, stocks A and B have the following characteristics: • Stock A has and expected return of 22% and a beta of 2. • Stock B has an expected return of 15% and a beta of 0.8. The standard deviation of the market portfolio’s return is 18%. (a) Assuming that stocks A and B are correctly priced according to the CAPM, compute the risk-free rate and the market risk premium.
- Consider two investors A and B.If the Certainty-Equivalent end-of-period wealth of A is less than the Certainty-Equivalent end-of-period wealth of B for the same portfolio choice,then A. Risk aversion of A > Risk aversion of B B. Risk aversion of A = Risk aversion of B C. Risk aversion of A< Risk aversion of B D. Not enough Information Justify your choice in a sentence or two：Elizabeth has decided to form a portfolio by putting 30% of her money into stock 1 and 70% into stock 2. She assumes that the expected returns will be 10% and 18%, respectively, and that the standard deviations will be 15% and 24%, respectively. Describe what happens to the standard deviation of the portfolio returns when the coefficient of correlation ρ decreases. The standard deviation of the portfolio returns decreases as the coefficient of correlation decreases. The standard deviation of the portfolio returns increases as the coefficient of correlation increases. The standard deviation of the portfolio returns decreases as the coefficient of correlation increases. The standard deviation of the portfolio returns increases as the coefficient of correlation decreases.A company owns an asset that is worth $245,000 and there is a 6% chance that it will lose $185,000 in value, otherwise it will not change. If the company has an expected utility functions with u(x) = x0.5, then the expected utility for the company is 480 464 460 456
- Interest rate risk refers to changes in the bond's ___________ (coupon rate, credir rating, par value, or yield to maturity) , whereby a decrease in that item causes bond values to _______________ (increase, decrease, remain constant, or vary randomly)You are considering two portfolios. Portfolio A has an expected return of 15% and a standard deviation of 30%. Portfolio B has an expected return of 6% and a standard deviation of 19%. What is the certainty equivalent of these portfolios, specifically when your risk aversion is such that you are indifferent between portfolio A and portfolio B?Suppose you’re evaluating a new project costing 125 and yielding an expected payoff of 75 for the two subsequent years. You know that the market(portfolio) rate is 0,10 that the covariance of the new investment’s payoff with the market portfolio is 0,2 and that the variance of the market payoff is 0,1. You also know that the risk-free rate is 0,05. Would you accept the project if you do not account for the risk embodied in the new project? Why? What if you probably accounted for risk, by using CAPM?
- You are a financial planner. One of your clients is 40 years old and wants to begin saving for retirement. You advise her to put $5,000 a year into the stock market. You estimate that the market's effective return will be, on average, 12 percent a year. Assume the investment will be made at the end of the year. What is the value of her savings after 20 years.You are a financial planner. One of your clients is 40 years old and wants to begin saving for retirement. You advise her to put $5,000 a year into the stock market. You estimate that the market's effective return will be, on average, 12 percent a year. Assume the investment will be made at the end of the year. What is the value of her savings after 20 years. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.You are a risk-averse investor with a CRRA utility function. You are faced with the decision to invest your total wealth W of £1,000,000 into a riskless asset which generates a return of 5% or into a risky asset which either generates a return of 20% or a loss of −4% with equal probability. Find the optimal investment allocation with a coefficient of relative risk aversion η=2, and comment on your results.A risk-averse manager is considering two projects. The first project involves expanding the market for bologna; the second involves expanding the market for caviar. There is a 10 percent chance of a recession and a 90 percent chance of an economic boom. During a boom, the bologna project will lose $10,000, whereas the caviar project will earn $20,000. During a recession, the bologna project will earn $12,000 and the caviar project will lose $8,000. If the alternative is earning $3,000 on a safe asset (say, a Treasury bill), what should the manager do? Why?