The end-of-year cash flow from an asset will be either

Assignment Help Financial Management

Reference no: EM131182609

The end-of-year cash flow from an asset will be either $70,000 or $200,000 with equal probabilities. T-Bills pay 6%.

a. If you require a risk premium of 8%, how much would you be willing to pay for the cash flow?

b. If you require a risk premium of 12%, what would you be willing to pay?

c. From your answers to parts a and b, describe the relationship between risk premiums and prices.

Reference no: EM131182609

Questions Cloud

What is nominal dollar amount of your last withdrawal : You are planning to save for retirement over the next 30 years. To save for retirement, you will invest $1,150 per month in a stock account in real dollars and $540 per month in a bond account in real dollars. How much can you withdraw each month fro..

Using dividends and earnings model : New Millennium Company stock sells at P/E ratio of 20.6 times earnings. It is expected to pay dividends of 2.19$ per share in each of the next 5 years and to generate an EPS of 5.23 $ in year 5. Using dividends - and earnings model and 11%discount ra..

What was total long-term debt and total liabilities : At year-end 2013, Wallace Landscaping’s total assets were $1.0 million and its accounts payable were $365,000. Sales, which in 2013 were $2.8 million, are expected to increase by 20% in 2014. Total assets and accounts payable are proportional to sale..

He other is passive-index portfolio with expected retun : You have two portfolios for your clients to choose from or combine. One is an actively managed portfolio with an expected return of 18% and standard deviation of 28%. The other is a passive, index portfolio with an expected return of 13% and standard..

The end-of-year cash flow from an asset will be either : The end-of-year cash flow from an asset will be either $70,000 or $200,000 with equal probabilities.

Considering two investments-conventional-fdic insured : You are considering two investments, a conventional, FDIC insured 1-year bank CD with an interest rate of 5% and a 1-year “Inflation Plus” CD offering 1.5% plus the rate of inflation, which is also FDIC insured. Which investment is safer? If you expe..

During period of significant inflation : During a period of significant inflation, a bond earned an annual nominal return of 80%. The rate of inflation over the year was 70%. a. Calculate the real holding period return for the year. b. Compare this real holding period return to the approxim..

Set of data containing historical prices and dividends : You have just come across a set of data containing historical prices and dividends that will allow you to calculate stock returns all the way back to 1880. Give at least one advantage and one disadvantage of using this data set to estimate U.S. stock..

Net fixed assets and net working capital was zero : During 2009, Raines Umbrella Corp. had sales of $745,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $567,000, $88,000, and $126,000, respectively. Assume Raines Umbrella Corp. paid out $19,000 in cash div..

User Account

All Pages