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Suppose that a security costs $3,000 today and pays off some amount b in one year. Suppose that b is uncertain according to the following table of probabilities:
b: 3,0000 3,300 3,600 3,900 4,200Prob: 0.1 0.2 0.3 0.2 0.2
a.) Calculate the return (in percent) for each value of b. (Note: you may just calculate the total return and not worry about how this is split between current yield and capital-gains yield.)b.) Calculate the expected return (in percent).c.) Calculate the standard deviation of the return.d.) Suppose that an investor has a choice between this security or purchasing a different security that also costs $3,000 today but that pays off $3,300 with certainty in one year. How is an investor's choice of which security to purchase related to his degree of risk aversion?
An investment opportunity offers to pay out $116 two years for now. In order to receive this payout, you must invest $81 today. What annual rate of return is this investment offering? Put your answer in decimal form and round to four decimal pl..
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