Consider a risky asset that has two possible payoffs in a year's time: Outcome Probability Payoff Good
Question:
Consider a risky asset that has two possible payoffs in a year's time: Outcome Probability Payoff Good $200,000 Bad .5 $70,000 .5 Assume the risky asset is actually selling for $110,000. What is the variance of the returns to the risky asset? Please compute variance of returns in decimal form (e.g, treat a 20% return as 0.20), and enter your answer rounded to the third decimal place. x Consider a risky asset that has two possible payoffs in a year's time: Outcome Probability Payoff Good .5 $200,000 Bad .5 $70,000 Your alternative is to invest in a risk-free asset (a T-bill) that returns 6% per year in either state.
If your coefficient of risk aversion is such that your risk premium to invest in the risky asset is 8%, how much would you be willing to pay for the risky asset?
Please enter your answer in dollars rounded to the nearest cent.
Financial Institutions Management A Risk Management Approach
ISBN: 978-0071051590
8th edition
Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders