You are considering a risky investment that you expect will either be worth 165,000 in 1 year, or 95,000, with probabilities of 0.6 and 0.4 for each outcome, respectively. You could invest in riskless T-bills at 0.047. If you invest in this risky investment, you would expect to earn a risk premium of 0.073 Given this information, what would you be willing to pay for this investment? O 113,881 O 106,615 O 118,358 O 122,321 O 109,991

You are considering a risky investment that you expect will either be worth 165,000 in 1 year, or 95,000, with probabilities of 0.6 and 0.4 for each outcome, respectively. You could invest in riskless T-bills at 0.047. If you invest in this risky investment, you would expect to earn a risk premium of 0.073 Given this information, what would you be willing to pay for this investment? O 113,881 O 106,615 O 118,358 O 122,321 O 109,991

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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The investor has R50,000 to invest A, B and C. R12,000 will be invested into asset A. The beta for asset A and asset B is 0.90 and 1.2 respectively. Asset C represents the risk-free asset. If the investor envisages a portfolio equally as risky as the market, how much should be invested into asset B? Which answer is correct? A. 32677 B. 32676 C. 32667 D. 32678
The investor has R50,000 to invest A, B and C. R12,000 will be invested into asset A. The beta for asset A and asset B is 0.90 and 1.2 respectively. Asset C represents the risk-free asset. If the investor envisages a portfolio equally as risky as the market, how much should be invested into asset B? A. 32677 B. 32676 C. 32667 D. 32678
The investor has R60,000 to invest. R15,000 will be invested into the market portfolio, R10,000 into asset A and R25,000 into asset B. The balance will be invested into the risk-free asset. The beta for asset A and asset B is 0.90 and 1.2 respectively. What is the portfolio beta? What is the correct answer? A. 0.09 B. 0.90 C. 0.91 D. 0.92
You invest $100 in a risky asset with an expected rate of return of 15% and a standard deviation of 15% and a T-bill with a rate of return of 5% and E (U)= E(r) - 0.5Ao. Suppose your risk aversion factor is 5. What weight would you assign to the risk-free asset? A) 0.8889. B) 0.1111. C) 0.2457. D) 0.2111. . Which of the following statements is true regarding the optimal risky portfolio: A) It is designated by the point of tangency with iso-utility curve and the capital allocation line. B) It is designated by the point of highest Sharpe ratio in the opportunity set. C) It is designed by the point of tangency with the opportunity set and the securities market line. D) This portfolio gives the highest standard deviation risk per unit of risk premium in the opportunity set.
The investor has R50,000 to invest A, B and C. R12,000 will be invested into asset A. The beta for asset A and asset B is 0.90 and 1.2 respectively. Asset C represents the risk-free asset. If the investor envisages a portfolio equally as risky as the market, how much should be invested into asset B?
Suppose you have a medium risk-tolerance, and you want an annual return of $355. You decide to invest part in Fund A and the rest in Fund B. How much do you need to invest in Fund A? $ . Round to the nearest cent. Appreciate it thanks!!@@
Suppose the term structure of risk-free interest rates is as shown below: 5 yr 7 yr 10 yr 20 yr Term 1 yr 2 yr 3 yr 2.42 2.77 3.31 3.75 4.15 4.93 1.98 Rate (EAR %) What is the present value of an investment that pays $103 at the end of each of years 1, 2, and 3? If you wanted to value this investment correctly using the annuity formula, what discount rate should you use? What is the present value of an investment that pays $103 at the end of each of years 1, 2, and 3? The present value of the investment is $294.08. (Round to the nearest cent.) If you wanted to value this investment correctly using the annuity formula, what discount rate should you use? The discount rate you should use if you want to use the annuity formula is 2.94%. (Round to two decimal places.)
The risk-free rate is currently 3.3%, and the market return is 14.8%. Assume you are considering the following investments: Investment Beta A 1.54 B 1.16 C 0.51 D 0.11 E 2.14 . a. Which investment is most risky? Least risky? b. Use the capital asset pricing model (CAPM) to find the required return on each of the investments. c. Find the security market line (SML), using your findings in part b. d. On the basis of your findings in part c, what relationship exists between risk and return? Explain.
Jerome J. Jerome is considering investing in a security that has the following distribution of possible one-year returns: Probability of occurrence 0.10 0.20 0.30 0.30 0.10 Possible return −0.10 0.00 0.10 0.20 0.30 a. What is the expected return and standard deviation associated with the investment?
Suppose you are an investor with a choice between three securities that are identical in every way except in terms of their rates of return and risk. Which investment provides the highest expected return? Investment A: total return= 10% with profitability 50% total return= 20% with profitability 50% Investment B: total return= 12% with profitability 50% total return= 18% with profitability 50% Investment A: total return= 5% with profitability 60%
You invest $100 in a risky asset with an expected rate of return of 0.12 and a standard deviation of 0.15 and a T-bill with a rate of return of 0.05. What percentages of your money must be invested in the risky asset and the risk-free asset, respectively, to form a portfolio with an expected return of 0.09? Group of answer choices a. 85% and 15% b. 75% and 25% c. 67% and 33% d. 57% and 43%
Question 1) Federico wants to calculate the expected rate of return for security for his work as a freelance investment banker. He has the following figures to calculate CAPM: the risk-free interest rate is 4%, the expected return of the market is 17%, and the risk index of the security is 1.40.

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