Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $70,000 or $200,000 with equal probabilities of 0.5. The alternative risk - free investment in T - bills pays 2% per year. Required: If you require a risk premium of 8%, how much will you be willing to pay for the portfolio? Suppose that the portfolio can be purchased for the amount you found in (a). What will be the expected rate of return on the portfolio? Now suppose that you require a risk premium of 12%. What price are you willing to pay?

Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $70,000 or $200,000 with equal probabilities of 0.5. The alternative risk - free investment in T - bills pays 2% per year. Required: If you require a risk premium of 8%, how much will you be willing to pay for the portfolio? Suppose that the portfolio can be purchased for the amount you found in (a). What will be the expected rate of return on the portfolio? Now suppose that you require a risk premium of 12%. What price are you willing to pay?

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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Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $150,000 or $290,000 with equal probabilities of 0.5. The alternative risk-free investment in T-bills pays 3% per year. Required: a. If you require a risk premium of 7%, how much will you be willing to pay for the portfolio? b. Suppose that the portfolio can be purchased for the amount you found in (a). What will be the expected rate of return on the portfolio? c. Now suppose that you require a risk premium of 12%. What price are you willing to pay? Complete this question by entering your answers in the tabs below. Required A Required B Required C If you require a risk premium of 8%, how much will you be willing to pay for the portfolio? Note: Do not round your intermediate calculations. Round your answer to the nearest whole dollar amount. Price Required A Required B >
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Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $150,000 or $290,000 with equal probabilities of .5. The alternative risk-free investment in T-bills pays 6% per year. a. If you require a risk premium of 7%, how much will you be willing to pay for the portfolio? (Round your answer to the nearest whole dollar amount.) b. Suppose that the portfolio can be purchased for the amount you found in (a). What will be the expected rate of return on the portfolio? (Round your answer to the nearest whole number.) c. Now suppose that you require a risk premium of 12%. What is the price that you will be willing to pay? (Round your answer to the nearest whole dollar amount.)
Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $110,000 or $280,000 with equal probabilities of .5. The alternative risk-free investment in T-bills pays 6% per year. a. If you require a risk premium of 4%, how much will you be willing to pay for the portfolio? (Round your answer to the nearest whole dollar amount.) b. Suppose that the portfolio can be purchased for the amount you found in (a). What will be the expected rate of return on the portfolio? (Round your answer to the nearest whole number.)
Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $70,000 or $195,000, with equal probabilities of 0.5. The alternative riskless investment in T-bills pays 4%. Required: a. If you require a risk premium of 8%, how much will you be willing to pay for the portfolio? (Round your answer to the nearest dollar amount.) Value of the Portfolio b. Suppose the portfolio can be purchased for the amount you found in (a). What will the expected rate of return on the portfolio be? (Do not round intermediate calculations. Round your answer to the nearest whole percent.) Rate of return % c. Now suppose you require a risk premium of 11%. What is the price you will be willing to pay now? (Round your answer to the nearest dollar amount.) Value of the portfolio
You are going to invest $50,000 in a portfolio consisting of assets X, Y, and Z, as follows; What is the expected return of this portfolio? Calculate the beta coefficient of the portfolio
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In this problem we assume that the annual expected rate of return of the market portfolio is 22% and the annual risk-free rate is 2%. The standard deviation of the market portfolio returns is 22%. Assume the market is in equilibrium such that the Capital Asset Pricing Model (CAPM) holds: the market portfolio is efficient. If you have $1,000 to invest, how should you allocate it to achieve an annual expected return of 26%? Invest $260 in the risk-free asset and $740 in the market portfolio Invest $800 in the risk-free asset and $200 in the market portfolio Invest $1,200 in the risk-free asset and sell short $200 in the market portfolio Borrow $260 at the risk-free rate and invest $1,260 in the market portfolio Invest $200 in the risk-free asset and $800 in the market portfolio Borrow $200 at the risk-free rate and invest $1,200 in the market portfolio
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Suppose that you have $1 million and the following two opportunities from which to construct a portfolio: a. Risk-free asset earning 13% per year. b. Risky asset with expected return of 27% per year and standard deviation of 40%. If you construct a portfolio with a standard deviation of 28%, what is its expected rate of return? (Do not round your intermediate calculations. Round your answer to 1 decimal place.) Expected return on portfolio %
The investor has R50,000 to invest A, B and C. R12,000 will be invested into asset A. The beta for asset A and asset B is 0.90 and 1.2 respectively. Asset C represents the risk-free asset. If the investor envisages a portfolio equally as risky as the market, how much should be invested into asset B?

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