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lapo4ka [179]
3 years ago
11

Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $120,000 or $300,000 with equal

probabilities of 0.5. The alternative risk-free investment in T-bills pays 5% per year.
Required:
a. If you require a risk premium of 8%, 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 rate of return on the portfolio be?
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?
Business
1 answer:
Ivanshal [37]3 years ago
4 0

Answer:

a. If you require a risk premium of 8%, how much will you be willing to pay for the portfolio?

the expected value of our portfolio = ($120,000 x 50%) + ($300,000 x 50%) = $210,000

the current market price of the investment = $210,000 / 1.13 = $185,840.71

discount rate = 5% + 8% = 13%

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?

13%, it should be equal to the discount rate

c. Now suppose you require a risk premium of 15%. What is the price you will be willing to pay now?

the current market price of the investment = $210,000 / 1.21 = $175,000

discount rate = 5% + 15% = 20%

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?

the higher the risk premium, the lower the market price of the portfolio

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nataly862011 [7]
The answer is A) Raising taxes


The Constitution of 1789 gives the Federal Government authority to raise and levy taxes in all of the States in America.


It comes under the General Welfare Clause and gives complete authority to impose and collect taxes. 

It prohibits separate State taxation IF it hinders inter State and International trading. It also prohibits each State from setting up independent import and export duties without the approval of the Federal Government, that is, the Congress.

It requires all tax revenue bills to originate solely from the House of Representatives.

 

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7 0
3 years ago
Jackson State University is evaluating two options. It can perform online distance learning upgrades now for $275,000 or it can
Vera_Pavlovna [14]

Answer:

The answer for (a)$442,890 for (b) $364,023.5

Explanation:

<em>From the question, the first set to take is to determine if the Mayor should purchase now or late when,</em>

<em>(a)When inflation is not considered</em>

<em>(b)When inflation is considered</em>

<em>(A) When inflation is considered</em>

<em>Future worth analysis (FWA) = 275, 000 (i +1)^5</em>

<em> =275,000 (1.10)^5</em>

<em>= $442,890</em>

<em>Thus, since FW > $375,000,</em>

<em>The cost of future is less, the Mayor should purchase later.</em>

<em>(B) When inflation is considered</em>

<em>Real rate = ( 1 + nominal/1 +inflation)^-1 = 1.1/1.04 -1 = 0.057 = 5.77</em>

<em>FW = 275,000 (1 +i)^5 = 275,000 (1.0577)^5</em>

<em>=$364,023.5</em>

<em>So FW< 375,000</em>

<em>Because the worth of buying or purchasing is less, the mayor should purchase now</em>

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3 0
3 years ago
There are many food carts near Mark’s university. Mark and his friends regularly buy hot dogs from Jeff’s cart. Recently, Andrea
garik1379 [7]
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4 0
3 years ago
Callahan and megan plan to invest in corporate securities. while callahan plans to retire next year on his 65th birthday, megan
madreJ [45]

Answer:

a. callahanb

Explanation:

Conservative investment strategy means investing in a less risky asset so the there is certain cash flow . Investment in govt bonds or treasury bills or company debentures etc of good rating are example of conservative investment strategy.

Old timers should opt for conservative investment . It is so because their risk bearing capacity is low. They can be reined in case of any windfall loss .

They have fixed liability in the form of medical expenses etc.

On the other hand youngsters have no such fixed liability . So they go for some risky alternative to take advantage of risk premium.

3 0
2 years ago
A vacant lot acquired for $115,000 is sold for $298,000 in cash. What is the effect of the sale on the total amount of the
Artemon [7]

Answer:

+$183,000

$0

+$183,000

Explanation:

Total assets increased by ($298,000 - $115,000) $183,000.

Total liabilities has no change

Total shareholder equity increased by ($298,000 - $115,000) $183,000.

4 0
3 years ago
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