1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Anvisha [2.4K]
3 years ago
7

Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $40,000 or $135,000, with equal

probabilities of 0.5. The alternative riskless investment in T-bills pays 4%.
a.If you require a 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 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?
Business
1 answer:
pogonyaev3 years ago
4 0

Answer:

a. $76,754

.38

b. 14%

c. $73,529

Explanation:

a. The computation of portfolio is given below:-

Risk Premium

= Required return - Risk free rate

= 10% + 4%

= 14%

Expected value of the payoff

= $40,000 × 1 ÷ 2 + $135,000 × 1 ÷ 2

= $87,500

Value of portfolio = $87,500 ÷ (1 + 14%)

= $76,754.39

b. The calculation of expected rate of return on the portfolio is shown below:-

= ($87,500 - $76,754.39) ÷ $76,754.39

= 14%

c. The calculation of risk premium is shown below:-

Risk premium = Required return - Risk free rate

Required return = 15%+4% = 19%

Expected rate of the payoff

= $40,000 × 1 ÷ 2 + $135,000 × 1 ÷ 2

=$87500

Value of portfolio

= $87,500 ÷ (1 + 19%)

= $73,529

You might be interested in
Cyber Security Systems had sales of 4,600 units at $65 per unit last year. The marketing manager projects a 30 percent increase
scoray [572]

Answer:

Net dollar sales projection for this year =   516,971.00

Explanation:

<em>Projected sales volume </em>

130%× 4,600= 5,980units

<em>Project selling price</em>

=140% × $65

= $91

<em>Total sales value </em>

= $91 × 5980units

=  $ 544,180.00

<em>Net dollar sales projection</em>

=  Total sales value -  Returned merchandise

= 544,180.00 - (5%  × 544,180.00 )

=  $ 516,971.00

Net dollar sales projection for this year =   516,971.00

3 0
3 years ago
Efram’s audience was persuaded by his speech because they perceived him to be sincere, trustworthy, and to have their best inter
harina [27]

Answer:

Character.

Explanation:

Credible character is used for someone who is trustworthy, kind and believable, it has to be backed by evidence or experience. It carry the power to influence belief or thought. Crediblity of a character may slip if it is not maintained forever. As crediblity is earned through consistent honesty, selflessness,virtue and good behavior.

There are several dimensions of crediblity that affect audience toward speaker:

  • Competence
  • Extraversion.
  • Composure.
  • Character.
  • Sociability.
8 0
3 years ago
A bank will not require security in the form of collateral as a guarantee the loan will be repaid.
Flauer [41]
The answer is so true
6 0
3 years ago
Read 2 more answers
You will be administratively suspended if you have a breath or blood alcohol level of ____ or above or refuse to submit to a che
olga nikolaevna [1]
As per ALS or administrative license suspension or revocation, a blood alcohol concentration of 0.08% or higher will automatically suspend you administratively aside from refusing to submit a chemical test. Automatically, licenses will be confiscated and will be suspended of criminal proceedings independently.
7 0
3 years ago
An insurance company has offered your friend the choice of $45,000 per year for 15 years, with the first payment being made toda
TiliK225 [7]

Answer:

$427,011.92

Explanation:

We use the present value formula i.e to be shown in the attached spreadsheet

Given that,  

Future value = $0

Rate of interest = 7.5%

NPER = 15 years

PMT = $45,000

The formula is shown below:

= -PV(Rate;NPER;PMT;FV;type)

And, in type we write the 1 instead of 0

So, after solving this, the present value is $427,011.92

8 0
3 years ago
Other questions:
  • Distinguish between serial activities and concurrent activities why do we seek to use concurrent activities as a way to shorten
    15·1 answer
  • If you had a bank account, which two methods of completing transactions do you think you would use most frequently? Why?
    12·1 answer
  • Prime Corp. has an ending balance in the accounts receivable account of $100,000. Prime recorded bed debt expense of $3000. Prim
    8·1 answer
  • is a structured approach used by decision makers to develop a sourcing strategy for a product or service, based on the value pot
    6·1 answer
  • "Health care is so special that price will never matter. People will either buy what medical care they need, or else they will j
    15·1 answer
  • Is increasing the entrepreneurial orientation of a firm always a good thing? ​
    7·1 answer
  • What website can i buy custom nikes on​
    15·2 answers
  • If capital rents for $25 per unit per hour, labor can be hired for $9 per unit per hour, the level of total factor productivity
    15·1 answer
  • Abbott Landscaping purchased a tractor at a cost of $29,000 and sold it three years later for $15,700. Abbott recorded depreciat
    11·1 answer
  • By what date must taxes be filed in the united states?
    8·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!