Imagine a situation where there is a 40% chance of a $100 loss, a 40% chance of a $50 gain, and a 20% chance of a $350 gain. What is the expected value of this risky situation? Give typing answer with explanation and conclusion
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Imagine a situation where there is a 40% chance of a $100 loss, a 40% chance of a $50 gain, and a 20% chance of a $350 gain. What is the expected value of this risky situation?
Give typing answer with explanation and conclusion
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- Consider a decision maker who is comfortable with an investment decision that has a50 percent chance of earning $25,000 and a 50 percent chance of losing $12,500, but notwith any larger investments that have the same relative payoffs. a. Write the equation for the exponential function that approximates this decision maker’sutility functionA project is thought to have a 0.55 probability of making a profit of P400,000 and a 0.45 probability of making a profit of P200,000. What is the change in expected profit if the probabilities actually turn out to be 0.60 and 0.40, respectively?Suppose the risk-free rate is 5%. The expected return and standard deviation of a risky asset are 10% and 20%, respectively. a. What is the slope of the capital allocation line (CAL) constructed using the risk-free asset and the risky asset? A. 0.30 B. 0.15 C. 0.25 D. 0.20 b. If an investor has a risk aversion coefficient of A=2, what is the optimal fraction of the money that she invests in the risky asset? A. 62.5% B. 42.5% C. 30% D. 20% c. If an investor invest 25% of her money in the risky asset, which is the investor’s risk aversion coefficient? a. 5 b. 1 c. 3 d. 4
- An organization is presented with a choice of two investment options. Option A has a 60% chance of making a profit of ₱300,000 and a 40% chance of incurring a loss of $500,000. Option B has a 70% chance of making a profit of ₱200,000 and a 30% chance of incurring a loss of ₱250,000. What is the expected profit/loss for Option A? (Put parenthesis if negative What is the expected profit/loss for Option B? (Put parenthesis if negative)There are two risky assets; their expected returns are 10% and 8%, and their volatilities are 20% and 10%. The correlation between the two assets is zero. The risk-free rate is 2%. Assume that you are considering investing $10,000 into the three assets (two risky and one risk-free), and you have decided that $4,000 should be invested into the risk-free asset (the remaining goes to the risky ones). If you are a mean-variance efficient investor, how much money will you invest in asset 1 (the one with a 10% expected return and a 20% volatility)? answers: $1500 $4800 $6000 $2400You invest R100 in a risky asset with an expected rate of return of 15% and a standard deviation of 20% and a T-bill with a rate of return of 4%. What percentages of your money must be invested in the risky asset and the risk-free asset, respectively, to form a portfolio with an expected return of 9%. What is the percentage invested in risky asset ?What is the percentage invested in risk-free asset ?
- Assume that an investment is expected to generate the following returns: a 10% chance of a $1,400 return, a 50% chance of a $6,600 return, and a 40% chance of a $1,500 return. What is the expected rate of return on this investment? Note: The solution must be displayed on an Excel sheet using Excel functions such as =PV(...) and =FV(...) etc.Assume that you are faced with an opportunity made up of three equally likely outcomes. If the first outcome occurs, you receive P1000. If the second outcome occurs, you receive no money. If the third outcome occurs, you must pay P100. Given that you can be characterized as risk neutral, how much would you pay to take this risk? Would you willing to pay more or less this opportunity?Assume that you are faced with an opportunity made up of three equally likely outcomes. If the first outcome occurs, you receive P1000. If the second outcome occurs, you receive no money. If the third outcome occurs, you must pay P100. Given that you can be characterized as risk neutral, how much would you pay to take this risk? Would you willing to pay more or less this opportunity? Elaborate
- Suppose an investor is concerned about a business choice in which there are three projects, the probability and returns are given below. Probability Return 0.4 $100 0.4 40 0.2 -30 The expected value of the uncertain investment is $ ----------- (round off to the nearest dollarIf the return on the risk-free asset is 2.25% (Rf = 2.25%) and the market return is 6.50% (Rm = 6.50%), what is the beta of Bank of America, BAC, if it has had a return of 9.14%? You must show all counts.You invest $1000 in a risky asset with an expected rate of return of 0.17 and a standard deviation of 0.40 and a T-bill with a rate of return of 0.04. Assume the T-bill’s rate doesn’t change over your investment horizon. What percentages of your money must be invested in the risky asset to form a portfolio with an expected return of 0.11? (Hint: a value between 0 to 1).