Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $80,000 or $200,000, with equal probabilities of 0.5. The alternative riskless investment in T-bills pays 6%.

Required:
a. If you require a risk premium of 9%, how much will you be willing to pay for the portfolio?
b. What is the price you will be willing to pay now?

Question

02-03-2022
Business

Answered

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Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $80,000 or $200,000, with equal probabilities of 0.5. The alternative riskless investment in T-bills pays 6%.

Required:
a. If you require a risk premium of 9%, how much will you be willing to pay for the portfolio?
b. What is the price you will be willing to pay now?

Sagot :

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