Given $100,000 to invest, what is the expected risk premium in percentage and in dollars of investing in equities versus risk-free T-bills (U.S. Treasury bills) based on the following table? ActionProbabilityExpected ReturnInvest in equities.6$50,000- $30,000$ 5,000Note that Expected Return is in $ terms, not in percentage..4Invest in risk-free T-bill1.0

Investing in equities has two scenarios with 60% an 40% probabilities, and $50000 and - $30000…

Answered: Action Probability Expected Return…

Action Probability Expected Return Invest in equities .6 $50,000 .4 - $30,000 $ 5,000 Note that Expected Return is in $ terms, not in percentage. Invest in risk-free T-bill 1.0

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

See similar textbooks

Related questions

Q: A bank has two investment options to chose from for short term investment: Option A: A money market…

A: Option A:- Face Value = $2,000 Current price = $1,850 Time Period = 120 Days Option B:- Face Value…

Q: The future worth equivalent in year 12 of the cash flows with variable interest rates shown below is…

A: Interest Rate in first 2 years = 3% per year Interest Rate in year 3-9 = 6% per year Interest Rate…

Q: d. You are given two investment alternatives to analyse. The cash flows from these two instruments…

A: The present value of the annuity factor is used when there is an equal series of cash flows and the…

Q: Find the profitability index for Oman Clothing Company if the initial investment is 700 OMR and the…

A: The profitability index shows how much time is taken to recover the initial investment made in the…

Q: per $1 U.S. The one year forward rate is €1.14 per $1 U.S. What is the bank's dollar % spread if…

Q: Assume that You are risk manager at ABC Investment. ABC Investment lends 100.000.000 USD for 330 day…

A: Calculate the forward rate as shown below: Calculate the forward rate for the ask side as shown…

Q: Calculating Profitability Index [L07] What is the profitability index for the following set of cash…

A: The Profitability index = Present value of future cash inflow / Initial Investment

Q: Assuming a 1-year, money market account investment at 3.98 percent (APY), a 3.13% inflation rate, a…

A: given information money market account investment = 3.98% inflation rate = 3.13% marginal tax = 10%…

Q: Assume that You are risk manager at ABC Investment. ABC Investment lends 100.000.000 USD for 330 day…

A: Given information : Lending amount = 100.000.000 USD Lending time = 330 days Borrowing amount =…

Q: Consider the following cash flows over a 5-year period: −$100,000 @ t = 0;$35,000 @ t = 1; $45,000 @…

A: Net cash flows and cumulative cash flows Year Net Cash Flow Cumulative Cash Flow 0 -100,000…

Q: The cash flow for a company for their investment account is shown in the table below: Cash Year Cash…

A: Here, Q = $2,000 If we put Q=2,000, the calculation of Inflows is as follows:

Q: 10. Makmak Corporation uses the Baumol Cash Management Model to determine its optimal cash balance.…

A: SOLUTION- BAUMOLS MODEL =IT IS ONE OF THE CASH MANAGEMENT MODEL WHICH IS USE TO DECIDE HOW MUCH CASH…

Q: Suppose you are looking at the following possible cash flows: -Year 1 CF- $100; -Years 2 and 3 CFs…

A: Given Cash flows: Year Cash Flows 1 100 2 200 3 200 4 300 5 300 Discount rate = 8%

Q: You have $100,000 to invest. You choose to put $150,000 into the market by borrowing $50,000. a. If…

A: Investment means engaging your funds to generate income for the future. Return means amount earned…

Q: Assuming a 1-year, money market account investment at 4.97 percent (APY), a 2.96% inflation rate, a…

A: Answer 1: Information Provided: APY = 4.97% Inflation rate = 2.96% Marginal tax = 28% Balance =…

Q: A firm is considering an investment which will provide an annual cash inflow of $10,000 for the next…

A: The Present Value is the current value of a future amount i.e., it is the amount to be invested…

Q: Assume that You are risk manager at ABC Investment. ABC Investment lends 100.000.000 USD for 330 day…

A: Calculate the forward rate as shown below: Calculate the forward rate for the ask side as shown…

Q: The cash flow for a company for their investment account is shown in the table below: Cash Year Cash…

A: IRR is the rate at which NPV of the project is zero. According to the question given, year cash…

Q: A company, which uses a MARR of 896, has been presented an investment opportunity that is summarized…

A: The Internal rate of return is the rate at which the net present value is zero.

Q: Explain why FV of each given problem is valued as 1,000. If the current price is $900; 10% coupon;…

A: The anticipated return earned by holding the bond till maturity is referred to as yield to…

Q: What follows is a fill in the blank question with 2 blanks. An amount of R60000 is invested in a…

A: Here, Initial Investment is R60,000 Interest Rate is 12.55% NPV of the Project is -R4,327.02 Cash…

Q: Problem 1 Suppose your company wants to place an investment with a private equity firm with an…

A: Investment Amount is Php 200,000 Discount rate is 12% To Find: NPV through period 2022 to 2028 NPV…

Q: Consider the following balance sheet positions for a financial institution: • Rate-sensitive assets…

A: The repricing gap is a measure of the difference between the dollar value of assets and the dollar…

Q: Find the profitability index for Shanfari Company if the initial investment is 7900 OMR and the cash…

A: Profitability index can be calculated by dividing the present worth of future cash flows and the…

Q: Find the profitability index for Shanfari Company if the initial investment is 7900 OMR and the cash…

A: An investment appraisal is a capital budgeting process that involves the evaluation of the…

Q: Assuming a 1-year, money market account investment at 5.38 percent (APY), a 3.1% inflation rate,…

A: Real rate of return is the rate which is actually earned on the investment after adjusting the…

Q: The cash flow for a company for their investment account is shown in the table below: Cash Year Cash…

A: Net present value is where the sum present value of net cash flows at a given discount rate. The…

Q: Consider the following cash flow diagram. What value of C makes the inflow series equivalent to the…

A: The present value of the cash flow is the current worth of a cash flow at a certain rate of interest…

Q: What is the present value of a cashflow of EUR 5,327.21 arising in 276 days, using 4.2% as the rate…

A: “Since you have posted multiple questions, we will solve first question for you. If you want any…

Q: erm in years: 2 3 4. Cate: 1.8% 2.25% 2.30% 2.66% 3.13% he table above shows the interest rates…

A: Present value of cash flow is the value of cash flow that is equivalent to the value today…

Q: uestion Consider the following balance sheet positions for a financial institution: •…

A: The repricing gap is a difference between the assets value and the liability value.

Q: Assuming a 1-year, money market account investment at 2.51 percent (APY), a 1.1% inflation rate, a…

A: After tax rate of return will be calculated to get the exact return a person earn from investment…

Q: What is the present value of an investment with the following cash flows? Year 1 $14,000 Year 2…

A: Solution:- Present value means the value in today’s terms after discounting the future cash flows to…

Q: Assume that you just want 35 million dollars in Florida lottery hence the state will pay 20 annual…

A: Since the rate of return on securities is similar to the lottery earnings therefore 6% interest rate…

Q: Invest $7,000 today, receive $2,000 in year 1, $4,000 in year 2, and $8,000 in year 3. o Calculate…

A: Year 0 cash flow = - $7000 Year 1 cash flow = $2000 Year 2 cash flow = $4000 Year 3 cash flow =…

Q: The CFO of the company believes that an appropriate annual interest rate on this investment is 6.5%.…

A: An annuity is usually a series of even cash flows. There can also be cases of a growing annuity in…

Q: Find the profitability index for Oman Clothing Company if the initial investment is 700 OMR and the…

A: The profitability index shows how much time is taken to recover the initial investment made in the…

Question

Given $100,000 to invest, what is the expected risk premium in percentage and in dollars of investing in equities versus risk-free T-bills (U.S. Treasury bills) based on the following table?

Action
Probability
Expected Return
Invest in equities
.6
$50,000
- $30,000
$ 5,000
Note that Expected Return is in $ terms, not in percentage.
.4
Invest in risk-free T-bill
1.0

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Similar questions

Consider the following timeline: Date 0 i + $500 2 OA. $666. B. $605. C. $500. OD. $650. 3 Cash flow If the current market rate of interest is 10%, then the future value of the cash flows on this timeline is closest to:
Value UI T IUF WHich PW(1)c PW (1)p? 10. Investments A and B have the net cash flows given. End of year 1 4. $ 75 $ 75 $150 А -$250 -$250 $175 $ 75 $150 $ 75 В $150 Compare the present worth of A with the present worth of B for an in- terest rate of 5%. Which has the higher value? Answer: A If the interest rate is 15%, which has the higher value? Answer: B а. b. On the same axis, graph the present worth of each investment as a func- tion of the interest rate. с.
n.com Connect (i) Consider the following cash flows: Year Cash Flow 0 -$29,600 1 14,100 2 14,800 3 11,200 a. What is the profitability index for the cash flows if the relevant discount rate is 11 percent? Note: Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161 b. What is the profitability index if the discount rate is 16 percent? Note: Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161. c. What is the profitability index if the discount rate is 23 percent? Note: Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161. a. Profitability index b. Profitability index c. Profitability index.
Consider the following timeline: Date Cash flow 0 ? 1 OA. $472 B. $944 C. $600 D. $614 $100 2 $200 3 $300 If the current market rate of interest is 11%, then the present value (PV) of this timeline as of year 0 is closest to:
Consider the following cash flow stream 0 -$500 (11% 22% 27% The internal rate of return is closest to ○ 1 2 $200 $300 18% 32% 3 $400
A B 7. What is the expected NPV in C5? Scenario Probabilities NPV 1 2 Worst Case 3 Base Case 4 Best Case 0.2 (52,125) 0.6 27,652 0.2 107,429 5 Expected NPV ? 8. You wish to create a Data Table that A B D E calculates the NPV with various initial Year Cash Flow IO 2,547.98 outlays in D1:E6. Which cell should be entered into the Data Table dialog box, 2 -5000 -7000 3 1 1000 -6000 and in which edit box? Hint: pg. 400 of 4 2000 -5000 textbook and ch.13 Worksheet has a 5 3 3000 -4000 sample 6 4 4000 -3000 7 WACC 10% a) B7, Row input b) B7, Column input c) B2, Row input d) B2, Column input e) E1, Column input Data Table 10 Row input cell: 11 Column input cell: 12 OK Cancel 13 14
st K Present value calculation Without referring to the preprogrammed function on your financial calculator, use the basic formula for present value, along with the given discount rate, r, and the number of periods, n, to calculate the present value of $1 in the case shown in the following table. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Opportunity cost, r 4% The present value of $1 is $ Number of periods, n 6 (Round to three decimal places.)
Tasks/ calculation these questions are :- by 6 functions are : 1. Accumulative (future) money value 1/ Simple interest FV=PV*(1+* ? *N) 2/ Aggregate interest FV=PV (1+ ? )N 2. Present money value PV = FV * ^note N- total times of getting income^ R= ?????? ??? / N n- frequency of income generation per year 3. Present payment value PV = PMT * 4. Future payment value (PMT) FV = PMT * 5. Amortization payment PMT = PV * 6. Solatium fond factor (SFF) PMT = FV * Q1/ The investor wants to invest in the purchase of an office building. He suggests he can rent it out for 10 years at an annual rent of 1,850,000. At the end of the tenth year it is expected to sell the company for 18 million d.e. Income rate 20% What is the current value of the building?
launch.jsp?course_assessment_id=_163450_1&course_id=_281293_1&content_id%= 2196275_ دقائق. 1 1 ثانية )ثوان(۔ For a given cash flow diagram, if the interest rate i=10% , and A=$700, the F value is closest to: A F=? Years 3 i=10 % P=$ 4000 $2 $2 فرسال الحعظ والإرسات. ونفرفوق "حفط كل الإجابات"لحفظ كل الإجابات. حفظ كافة الإجابات hp ho 19 44 10 & 7 8. % A toN
Consider the following cash flows: Year Cash Flow 0 $32,500 123 13,300 18,400 10,700 What is the IRR of the cash flows? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Internal rate of return %
Given: D0 = $1g = 3%P0 = $20 What is the required rate of return? a. 1.58%b. 8.51%c. 8.15%d. 5.18%
Determine the ERR (External rate of return) of the cash flows if external rate (e) is given as %10. Cash Flow Year 0 1 2 3 4 5 6 7 Select one: a.0.245007 b.0.19667 c.0.168017 d.0.204146 e.0.274516 f.0.181262 g.0.228861 h.0.264278 -3000 3000 6000 -1000 2000 4000 -5000 8000

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS