Question

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?

Answer 1

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?