Suppose initially that two assets, A and B, will each make a single guaranteed payment of $400 in 1 year. But asset A has a current price of $280 while asset B has a current price of $320. Instructions: Round your answers to 2 decimal places. a. What are the rates of return of assets A and B at their current prices? Return on assetA= percent Return on asset B = percent Given these rates of return, which asset should investors buy and which asset should they sell? Buy asset (Click to select) ♥ and sell asset [(Click to select) ♥ . b. Assume that arbitrage continues until A and B have the same expected rate of return. When arbitrage ends, will A and B have the same price? (Click to select) Next, consider another pair of assets, C and D. Asset C will make a single payment of $600 in 1 year, while D will make a single payment of $800 in 1 year. Assume that the current price of C is $440 and that the current price of D is $680. c. What are the rates of return of assets C and D at their current prices? Return on asset C [ percent Return on asset D=[ percent Given these rates of return, which asset should investors buy and which asset should they sell? Buy asset (Click to select) and sell asset (Click to select)

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Chapter11: Capital Budgeting Decisions
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Suppose initially that two assets, A and B, will each make a single guaranteed payment of $400 in 1 year. But asset A has a current
price of $280 while asset B has a current price of $320.
Instructions: Round your answers to 2 decimal places.
a. What are the rates of return of assets A and B at their current prices?
Return on assetA =|
|percent
Return on asset B =
percent
Given these rates of return, which asset should investors buy and which asset should they sell?
Buy asset (Click to solect) v and sell asset (Click to select)
b. Assume that arbitrage continues until A and B have the same expected rate of return. When arbitrage ends, will A and B have the
same price?
(Click to select)
Next, consider another pair of assets, C and D. Asset C will make a single payment of $600 in 1 year, while D will make a single
payment of $800 in 1 year. Assume that the current price of C is $440 and that the current price of D is $680.
c. What are the rates of return of assets C and D at their current prices?
Return on asset C
percent
Return on asset D=
percent
Given these rates of return, which asset should investors buy and which asset should they sell?
Buy asset (ClickK to select) and sell asset (Click lo select)
Transcribed Image Text:Suppose initially that two assets, A and B, will each make a single guaranteed payment of $400 in 1 year. But asset A has a current price of $280 while asset B has a current price of $320. Instructions: Round your answers to 2 decimal places. a. What are the rates of return of assets A and B at their current prices? Return on assetA =| |percent Return on asset B = percent Given these rates of return, which asset should investors buy and which asset should they sell? Buy asset (Click to solect) v and sell asset (Click to select) b. Assume that arbitrage continues until A and B have the same expected rate of return. When arbitrage ends, will A and B have the same price? (Click to select) Next, consider another pair of assets, C and D. Asset C will make a single payment of $600 in 1 year, while D will make a single payment of $800 in 1 year. Assume that the current price of C is $440 and that the current price of D is $680. c. What are the rates of return of assets C and D at their current prices? Return on asset C percent Return on asset D= percent Given these rates of return, which asset should investors buy and which asset should they sell? Buy asset (ClickK to select) and sell asset (Click lo select)
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