Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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You have calculated the value of an investment to be $100. If it costs $105, you should buy it.
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- Imagine a situation where there is a 40% chance of a $100 loss, a 40% chance of a $50 gain, and a 20% chance of a $350 gain. What is the expected value of this risky situation? Give typing answer with explanation and conclusionarrow_forwardA game of chance offers the following odds and payoffs. Each play of the game costs $125, so the net profit per play is the payoff less $125. Probability 0.20 0.40 Payoff $500 200 Net Profit $375 75 0.40 0 -125 a-1. What is the expected cash payoff? Note: Round your answer to the nearest whole dollar amount. a-2. What is the expected rate of return? Note: Enter your answer as a percent rounded to the nearest whole number. b-1. What is the variance of the expected returns? Note: In the calculation, use the percentage values, not the decimal values for the rates of return. Do not round intermediate calculations. Round your answer to the nearest whole number. b-2. What is the standard deviation of the expected returns? Note: Enter your answer as a percent rounded to 2 decimal places. a-1. Expected cash payoff a-2. Expected rate of return b-1. Variance b-2. Standard deviation % %arrow_forwardWhat would the effect of the failure in the ratio measurement?arrow_forward
- Consider a policy that has benefits and costs that accrue in the following way: Year 0: Benefits = 20; Costs = 40. Year 1: Benefits = 25; Costs = 35. Year 2: Benefits = 50; Costs = 10. If the social discount rate is 6%, the net present value of the policy is Answer. Please report your answer out to at least two digits (e.g., 4.44 or -0.26).arrow_forwardA potential investment costs $2,404. You estimate that the investment has three possible outcomes, one it is worth $1,355 with a probability of 60% or two, it is worth $5,138 with a probability of 15% or three, it is worth $7,018. What is the standard deviation? Iarrow_forwardIn a few sentences, answer the following question as completely as you can. According to your textbook, “an investment should be accepted if the net present value is positive and rejected if it is negative” (p. 239). What does an NPV of zero mean?If you were a financial decision maker facing a project with NPV of zero (or close to zero) what would you do? Can you think of any other factors that might influence your decision?arrow_forward
- Suppose that consumers have utility function U(C) = log(C) where C is the consumption level and log is the natural logarithm. Consumers have initial consumptionlevels of 100 and are exposed to the following risk of loss: lose 10 with probability0.4 and lose 5 with probability 0.6. They are considering buying insurance to coverthese losses. What is the certainty equivalent level of C when uninsured? (Hint: Findthe consumption level CEsuch that U(CE) equals the expected utility whenuninsured.)arrow_forwarda. What is the NPV of investing today? The NPV is $428,235.29. (Round to the nearest dollar.) b. What is the NPV of waiting and investing tomorrow? The NPV if the rate goes up is $0. (Round to the nearest dollar.) The NPV if the rate goes down is $ 563,404.25. (Round to the nearest dollar.) The PV is $444,242. (Round to the nearest dollar.) c. Verify that the hurdle rate rule of thumb gives the correct time to invest in this case. The hurdle rule is $249,887.64. (Round to the nearest dollar.) (Select from the drop-down menu.) The NPV <0, so waitarrow_forwardYour accountant has conviced you that you should invest your bonus from this year into your retirement account-instead of buying a new sport car- because of the high expected return on the investment. Determine which of these fundamental factors is affecting the cost of money in the senario described. a. inflation b. Time prefernces for consumption c. Riskarrow_forward
- Interpret this value. Enter your answer for dollar value in whole dollar. For example, an answer of $1.20 million should be entered as 1,200,000, not 1.20. From a base level of $ , each one percent increase in results in a percent in .arrow_forwardInvestment A has a future value of $600. Investment B has a future value of $500. Both have the same present value. All else equal, which one has the higher interest rate? Select one: a. B b. A c. A=B Clear my choicearrow_forwardHow are you coming up with $9300 *0.05%? wouldn't it be $9900 x .05%?arrow_forward
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