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a. What is the value of the assets today? What is the expected payoff from the assets in one year? What is the expected return of the assets and what is the risk premium for the assets?

a. What is the value of the assets today? What is the expected payoff from the assets in one year? What is the expected return of the assets and what is the risk premium for the assets?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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We know the prices and payoffs for securities 1 and 2 and they are represented as follows. Security Cash Flow in One Year Strong Economy Market Price Today $25 $70 Asset Payoffs in One Year ($) Weak Economy $7,000 Weak Economy Strong Economy $15,000 $0 $100 The risk-free rate was calculated to be 5.2632%. Assume the probabilities of the weak economy and the strong economy are both 0.50. Suppose a company will last one year and its assets will generate payoffs in one year as follows. Complete parts a through c. $100 $0 a. What is the value of the assets today? What is the expected payoff from the assets in one year? What is the expected return of the assets and what is the risk premium for the assets? The assets today have a value of $ (Do not round until the final answer. Then round to the nearest dollar)
Transcribed Image Text:We know the prices and payoffs for securities 1 and 2 and they are represented as follows. Security Cash Flow in One Year Strong Economy Market Price Today $25 $70 Asset Payoffs in One Year ($) Weak Economy $7,000 Weak Economy Strong Economy $15,000 $0 $100 The risk-free rate was calculated to be 5.2632%. Assume the probabilities of the weak economy and the strong economy are both 0.50. Suppose a company will last one year and its assets will generate payoffs in one year as follows. Complete parts a through c. $100 $0 a. What is the value of the assets today? What is the expected payoff from the assets in one year? What is the expected return of the assets and what is the risk premium for the assets? The assets today have a value of $ (Do not round until the final answer. Then round to the nearest dollar)
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