Consider an asset that costs $120 today You are going to hold it for 1 year and then sell it Suppose that there is a 25 percent chance that it will be worth $110 in a year, a 25 percent chance that it will be worth $120 in a year, and a 50 percent chance that it will be worth $140 in a year Instructions: In parts a, b, and d round your answers to 2 decimal places if you are entering any negative numbers, be sure to include negative sign (-) in front of those numbers a. Whats its average expected rate of return? percent b Next, figure out what the investment's average expected rate of return would be if its current price were $130 today percent c Does the increase in the current price increase or decrease the asset's average expected rate of return? (Click to select) d. At what price would the asset have a zero average expected rate of return?
Consider an asset that costs $120 today You are going to hold it for 1 year and then sell it Suppose that there is a 25 percent chance that it will be worth $110 in a year, a 25 percent chance that it will be worth $120 in a year, and a 50 percent chance that it will be worth $140 in a year Instructions: In parts a, b, and d round your answers to 2 decimal places if you are entering any negative numbers, be sure to include negative sign (-) in front of those numbers a. Whats its average expected rate of return? percent b Next, figure out what the investment's average expected rate of return would be if its current price were $130 today percent c Does the increase in the current price increase or decrease the asset's average expected rate of return? (Click to select) d. At what price would the asset have a zero average expected rate of return?
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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Transcribed Image Text:Consider an asset that costs $120 today You are going to hold it for 1 year and then sell it Suppose that there is a 25 percent chance
that it will be worth $110 in a year, a 25 percent chance that it will be worth $120 in a year, and a 50 percent chance that it will be worth
$140 in a year
Instructions: In parts a, b, and d round your answers to 2 decimal places If you are entering any negative numbers, be sure to include a
negative sign (-) in front of those numbers
a. Whats its average expected rate of return?
percent
b Next, figure out what the investment's average expected rate of return would be if its current price were $130 today
percent
c Does the increase in the current price increase or decrease the asset's average expected rate of return?
(Click to select)
d. At what price would the asset have a zero average expected rate of return?
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