Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Chapter 5, Problem 11PS
Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $150,000 or $150,000, with equal probabilities of 0.5. The alternative riskless investment in T-bills pays 5%. (LO 5-3)
a. If you require u risk premium of 10%, how much will you be willing to pay for the portfolio?
b. Suppose the portfolio can be purchased for the amount you found in (a). What will the expected
c. Now suppose you require a risk premium of 15%. What is the price you will be willing to pay now?
d. Comparing your answers to (a) and (c), what do you conclude about the relationship between the required risk premium on a portfolio and the price at which the portfolio will sell?
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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
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 >
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?
Chapter 5 Solutions
Essentials Of Investments
Ch. 5 - Prob. 1PSCh. 5 - The real interest rate approximately equals the...Ch. 5 - When estimating a Sharpe ratio, would it make...Ch. 5 - You’ve just decided upon your capital allocation...Ch. 5 - Prob. 5PSCh. 5 - The stock of Business Adventures sells for $40 a...Ch. 5 - Prob. 7PSCh. 5 - a. Suppose you forecast that the standard...Ch. 5 - Using the historical risk premiums as your guide,...Ch. 5 - What has been the historical average real rate of...
Ch. 5 - Consider a risky portfolio. The end-of-year cash...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - Prob. 17PSCh. 5 - You manage an equity fund with an expected risk...Ch. 5 - What is the reward-to--volatility (Sharpe) ratio...Ch. 5 - A portfolio of nondividend-paying stocks earned a...Ch. 5 - Which of the following statements about the...Ch. 5 - Which of the following statements reflects the...Ch. 5 - Use the following data in answering CFA Questions...Ch. 5 - Prob. 5CPCh. 5 - Lise the following data in answerifng CFA Question...Ch. 5 - Use the following scenario analysis for stocks X...Ch. 5 - Prob. 8CPCh. 5 - Use the following scenario analysis for stocks X...Ch. 5 - 10. Probabilities for three states of the economy...Ch. 5 - 11. An analyst estimates that a stock has the...Ch. 5 - Prob. 1WMCh. 5 - Prob. 2WMCh. 5 - Prob. 3WM
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