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An investor is to purchase one of three types of real estate; an apartment building, an office building, or a warehouse. The future state of nature will determine how much profit the investor will make. The payoff table is:
Economic Condition
Purchase
Good
Poor
Apartment building
35,000
8,000
Office building
18,000
12,000
Warehouse
22,000
20,000
a-say the individual is a risk avoider. Create a table with plausible values of utility for a risk avoider,
b-calculate the expected utility of each decision when the probability of good economic conditions is .6,
c-state which is the best option under the expected utility concept and state the numerical value of expected utility in this case. (please do not just highlight information and expect me to pick out the best).
Suppose the expected return on the market portfolio is 15% and the riskless return is 9 percent. Also assume that all of the projects listed here are perpetuities with annual cash flows and betas as indicated.
The Polaroid Corporation has a straight bond issue outstanding that is due in 22 years. The bonds pay interest semiannually and sell for 117% per bond.
Now, 1 year later, your aunt must inform the IRS and the person who bought the house about the interest that was include in the two payments made during the year. This interest will be income to your aunt and a deduction to the buyer of the house...
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Assume that an investor sells short 200 shares of stock at $75 per share. At what price must the investor cover the short sale in order to realize a gross profit of $5,000? $1,000?
What is the implicit interest, in dollars, in the first year of the bond's life?
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