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

Question:

Consider a risky The end-of-year cash flow derived from the will be either $50,000 or $150,000, with equal probabilities of .5. The alternative riskless investment in T-bills pays 5%.
a. If you require a risk premium of 10%, how much will you be willing to pay for the Suppose the can be purchased for the amount you found in (a). What will the expected rate of return on the 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 and the price at which the will sell?
Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...