Answer:
A. $86,956.52
B. 15%
C.$83,333.33
Explanation:
a) Calculation for how much will you be willing to pay for the portfolio
First step is to calculate the required rate of return on the portfolio using this formula
The required rate of return on the portfolio= Risk Free Return+Risk Premium
Let plug in the formula
The required rate of return on the portfolio=5%+10%
The required rate of return on the portfolio=15%
Second step is to calculate the Expected value of the portfolio
Expected value of the portfolio= 0.5*50,000+0.5*150,000
Expected value of the portfolio =$100,000
Assuming x is the amount you will be willing to pay for the portfolio which means that:
x*(1+15%)=100,000 OR x= $86,956.52
Therefore You would be willing to pay $86,956.52 for the portfolio.
b) Calculation for What will the expected rate of return on the portfolio be
Expected return on the portfolio= (100,000-86,956.52)/86,956.52
Expected return on the portfolio=15%
Therefore the Expected return on the portfolio will be 15%
c) Calculation for What is the price you will be willing to pay now
In a situation where the risk premium is 15%, which means that the required rate of return will be
Required rate of return=5%+15%
Required rate of return=20%
Therefore the price you will be willing to pay= 100,000/(1+20%)
Price=$83,333.33
