You are considering a risky investment that you expect will either be worth 115,000 in 1 year, or 65,000, with probabilities of 0.65 and 0.35 for each outcome, respectively. You could invest in riskless T-bills at 0.058. If you invest in this risky investment, you would expect to earn a risk premium of 0.091 Given this information, what would you be willing to pay for this investment? 84,856 78,059 79,001 O 73,655

You are considering a risky investment that you expect will either be worth 115,000 in 1 year, or 65,000, with probabilities of 0.65 and 0.35 for each outcome, respectively. You could invest in riskless T-bills at 0.058. If you invest in this risky investment, you would expect to earn a risk premium of 0.091 Given this information, what would you be willing to pay for this investment? 84,856 78,059 79,001 O 73,655

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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Similar questions

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?
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? Which answer is correct? A. 32677 B. 32676 C. 32667 D. 32678
Suppose you have a medium risk-tolerance, and you want an annual return of $355. You decide to invest part in Fund A and the rest in Fund B. How much do you need to invest in Fund A? $ . Round to the nearest cent. Appreciate it thanks!!@@
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? A. 32677 B. 32676 C. 32667 D. 32678
Suppose that you have $1 million and the following two opportunities from which to construct a portfolio:a. Risk-free asset earning 12% per year.b. Risky asset with expected return of 30% per year and standard deviation of 40%.If you construct a portfolio with a standard deviation of 30%, what is its expected rate of return?
An investor has an opportunity to invest in two risky assets and a risk-free asset. Theexpected return of the two risky assets are μ1 = 0.12, μ2 = 0.15. Their standarddeviations are σ1 = 0.05 and σ2 = 0.1, and the correlation coefficient between theirreturn is 0.2. The risk-free rate is 0.05. Suppose the investor has $1000 and he wantsto hold a portfolio with expected return of 0.1. If the investor is risk averse, how muchshould he invest in the two risky assets and the risk-free asset?
You 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 ?
One of our clients, Mr. Lee, currently has an investment portfolio value of $1mil. His portfolio consists of 70% risky portfolio and 30% risk-free asset. If Mr. lee has now extra $100,000 cash to invest, and if he is a constant relative risk aversion, how do you think he wants to allocate his extra $100,000 over the risky and the risk-free asset?
Suppose you have $375,000 in cash, and you decide to borrow another $63,750 at a 7% interest rate to invest in the stock market. You invest the entire $438,750 in a portfolio J with a 20% expected return and a 28% volatility. a. What is the expected return and volatility (standard deviation) of your investment? b. What is your realized return if J goes up 39% over the year? c. What return do you realize if J falls by 19% over the year?
You have $100,000 to invest. You choose to put $150,000 into the market by borrowing $50,000. a. If the risk-free interest rate is 3% and the market expected return is 10% what is the expected return of your investment? b. If the market volatility is 18%, what is the volatility of your investment?
Consider a borrow-and-invest strategy in which you use $1 million of your own money and borrow another $1 million (at the t-bill rate) to invest $2 million in a market index fund. If the risk free interest rate is 5.52 percent and the expected rate of return on the market index fund is 12.68 percent, what is the risk premium on this borrow-and-invest strategy?
Being Finance Manager of Salalah Textiles Industries, you need to invest an amount for OMR 50,000 in the investment market. Assume the market rate of return is 0.11, risk free rate of return is 2.75% and Beta is .73, then:Required:a) What should be required rate of return for your investment?

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