Pays a certain gross return

Assignment Help Business Economics
Reference no: EM133062993

A bank can invest in 2 portfolios. Each requires $100 million to be raised either through debt or equity. One portfolio contains only safe assets and pays a certain gross return of $120 million. The other portfolio is risky and will pay a gross return of $300 million with probability 1/10 or a return of $50 million with probability 9/10.

a. Which portfolio makes the most sense from society's standpoint? Why?

b. If they can borrow the entire 100 million at 10% which portfolio will they choose and why?

c. Suppose they can borrow 90 million at 10% but must raise the other 10 million from equity. Which portfolio will they choose and why?

d. What if they must raise 20 million in equity and borrow only 80 million at 10%? Which portfolio will be chosen and why?

Reference no: EM133062993

Questions Cloud

How asymmetric information : Many police officer positions require the applicant to have a college degree even though the tasks of a police officer rarely call upon college course material.
What powers does the board of directors have : What powers does the board of directors have? What is the source of their powers - Advise who should be appointed as directors of their company
Define cross-price elasticity and point elasticity : 1. Explain several dimensions of the shareholder-principal conflict with manager agents known as the principle-agent problem. To mitigate agency problems betwee
Compute correct amount of physical inventory at november : The cost of sales of $68,600 included direct labor of $13,800. Compute the correct amount of the physical inventory at November 30, 2019
Pays a certain gross return : The other portfolio is risky and will pay a gross return of $300 million with probability 1/10 or a return of $50 million with probability 9/10.
Advise sailaway whether it is bound by the mortgage : What are the implications under Chapter 6D of the Corporations Act of the two fundraising options being considered - Advise Sailaway whether it is bound
What are the challenges facing market strategies : What are the challenges facing market strategies?
What ethical dilemmas has uber faced : What ethical dilemmas has Uber faced?
Why is the strategy of international business important : Why is the Strategy of International Business important?

Reviews

Write a Review

Business Economics Questions & Answers

  Monopolists demand function

A monopolist's demand function is P = 1624 - 4Q, and its total cost function is TC = 22,000 + 24Q -4Q2 + 1/3 Q3, where Q is output produced and sold. D) The total profits will be maximized at P =?

  Q1 what is a budget deficit explain how are budget deficits

q1. what is a budget deficit? explain how are budget deficits financed? why do keynesians believe that budget deficits

  How many hospital visits are purchased

Aggregate demand for hospital visits in the US is given by Q = 10,000,000 - 100P. The supply of hospital visits is perfectly elastic, with a market price

  Supplier to the furniture producer

If you were a supplier to the furniture producer, would have chosen to see the analysis performed in physical sales units rather than dollars of revenue.

  Short-run adjustment

Which of the following is a short-run adjustment?

  Prefers to drink skullsplitter and dragonhead stout together

Suppose there are two types of Scottish beer, Skullsplitter and Dragonhead Scout. Draw indifference curve for the following consumer (put Skullsplitter on the x-axis and Dragonhead Stout on the y-axis. Angus likes variety and prefers to drink Skullsp..

  Dispose of liquidated dental laboratory equipment

Austin's auctions conducts online auctions on behalf of clients trying to dispose of liquidated dental laboratory equipment.

  What is a earth system theory

What is a Earth System Theory? Explain. Give examples for better understanding

  What is the profit maximizing level of output

If marginal cost is constant at $20 and fixed cost is $100, what is the profit maximizing level of output?

  Inflation targeting as a policy framework

Why do central banks conduct inflation targeting (IT) as a policy framework? Discuss some of the advantages and potential disadvantages of a central bank

  What is money exchanged

What is money exchanged between an individual and a store fore goods or service on the circular flow chart?

  Structural feature of vertically integrated industry

1. What is the structural feature of "vertically integrated" industry? 2. How will this type of structure affect the growth of recycling industry?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd