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

Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $40,000 or $120,000, with equal probabilities of 0.5. The alternative riskless investment in T-bills pays 4%.

a. If you require a risk premium of 7%, how much will you be willing to pay for the portfolio? (Round your answer to the nearest dollar amount.)

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? (Do not round intermediate calculations. Round your answer to the nearest whole percent.)

c. Now suppose you require a risk premium of 12%. What is the price you will be willing to pay now? (Round your answer to the nearest dollar amount.)

Expert Solution

Given,

The end-of-year cash flow derived from the portfolio will be either $40,000 or $120,000, with equal probabilities of 0.5. The alternative riskless investment in T-bills pays 4%.

Solution :-

jeff jeffy answered 2 months ago

3. Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either...

3. Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $50,000 with probability 0.6 or $150,000 with probability 0.4. The alternative riskless investment in T-bill pays 5%. (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 be the expected rate of return on the portfolio? (c) Now...

5. Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either...

5. Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $70,000 or $200,000 with equal probabilities of .5. The alternative risk-free investment in T-bills pays 6% per year. a) If you require a risk premium of 8% so that the discount rate is 6 + 8 = 14%, how much will you be willing to pay for the portfolio? b) Suppose that the portfolio can be purchased for the amount you found in (a)....

Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $70,000...

Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $70,000 or $180,000, with equal probabilities of 0.5. The alternative riskless investment in T-bills pays 4%. a. If you require a risk premium of 12%, how much will you be willing to pay for the portfolio? (Round your answer to the nearest dollar amount.) Value of the portfolio $ b. Suppose the portfolio can be purchased for the amount you found in (a). What will...

Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $50,000...

Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $50,000 or $140,000, with equal probabilities of 0.5. The alternative riskless investment in T-bills pays 6%. a. If you require a risk premium of 11%, how much will you be willing to pay for the portfolio? (Round your answer to the nearest dollar amount.) Value of the portfolio $ b. Suppose the portfolio can be purchased for the amount you found in (a). What will...

Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $60,000...

Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $60,000 or $170,000, with equal probabilities of 0.5. The alternative riskless investment in T-bills pays 6%. a. If you require a risk premium of 10%, how much will you be willing to pay for the portfolio? (Round your answer to the nearest dollar amount.) Value of the portfolio $ b. Suppose the portfolio can be purchased for the amount you found in (a). What will...

Problem 5-11 Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be...

Problem 5-11 Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $55,200 or $161,100, with equal probabilities of 0.5. The alternative riskless investment in T-bills pays 4%. Required: (a) If you require a risk premium of 8.5%, how much will you be willing to pay for the portfolio? (Round your answer to the nearest dollar amount. Omit the "$" sign in your response.) Price $ (b) Suppose the portfolio can be purchased for the...

Consider a perpetuity with the first cash flow at the end of year 1. If the...

Consider a perpetuity with the first cash flow at the end of year 1. If the invested funds of the perpetuity could earn 11% per year and the perpetuity paid $467 per year, what is the present value of the perpetuity? (round to the nearest dollar)

Consider a project with free cash flow in one year of $146,076 or $198,619, with either...

Consider a project with free cash flow in one year of $146,076 or $198,619, with either outcome being equally likely. The initial investment required for the project is $75,000, and the project's cost of capital is 21%. The risk-free interest rate is 6%. (Assume no taxes or distress costs.) a. What is the NPV of this project? b. Suppose that to raise the funds for the initial investment, the project is sold to investors as an all-equity firm. The equity...

Consider the following cash flows: Year Cash Flow 2 $ 22,000 3 40,000 5 58,000 Assume...

Consider the following cash flows: Year Cash Flow 2 $ 22,000 3 40,000 5 58,000 Assume an interest rate of 8.8 percent per year. If today is Year 0, what is the future value of the cash flows five years from now? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Future value ? If today is Year 0, what is the future value of the cash flows ten years from now? (Do not...

Hampton Industries had $40,000 in cash at year-end 2017 and $14,000 in cash at year-end 2018....

Hampton Industries had $40,000 in cash at year-end 2017 and $14,000 in cash at year-end 2018. The firm invested in property, plant, and equipment totaling $290,000. Cash flow from financing activities totaled +$160,000. Round your answers to the nearest dollar, if necessary. What was the cash flow from operating activities? Cash outflow, if any, should be indicated by a minus sign. $ If accruals increased by $20,000, receivables and inventories increased by $165,000, and depreciation and amortization totaled $47,000, what...

Question