Solution-What is the expected return of security

What is the expected return of security

Assignment Help Finance Basics

Reference no: EM131401875

Suppose security C has a payoff of $600 when the economy is weak and $1800 when the economy is strong. The risk-free interest rate is 4%.

a. Security C has the same payoffs as what portfolio of the securities A and B in problem A.1?

b. What is the no-arbitrage price of security C?

c. What is the expected return of security C if both states are equally likely? What is its risk premium?

d. What is the difference between the return of security C when the economy is strong and when it is weak?

e. If security C had a risk premium of 10%, what arbitrage opportunity would be available?

Reference no: EM131401875

Questions Cloud

Identify which biological concepts from the course : Explain how the article relates to this course. Identify which biological concepts from the course and / or text are relevant to the topic covered in the article.

Is given appropriate choice for investigating given problem : What kind of study was this?- Is that an appropriate choice for investigating this problem? Explain.- Who were the subjects?- What were the variables?

Explain two basic principles of interpersonal communications : Explain two basic principles of interpersonal communications. Describe an instance of miscommunications. Identify one or more challenges or barrier that caused this miscommunication

To what extent is the internet itself competitive : Can competitive conditions develop from information technology, a technology that was created initially by centralized planning, that depends on agreed-upon rules to conduct business, and that has notoriously low marginal costs? (Think of the cost..

What is the expected return of security : a. Security C has the same payoffs as what portfolio of the securities A and B in problem A.1? b. What is the no-arbitrage price of security C? c. What is the expected return of security C if both states are equally likely? What is its risk premium?

Was given a stratified sample or a blocked experiment : Was this a stratified sample or a blocked experiment? Explain.- Was the design of the study appropriate for the advertisers' questions?

Index futures prices with a market risk premium : Suppose that the risk-free interest rate is 3% per annum with continuous compounding and that the dividend yield on a stock index is 4% per annum. The index is currently 400, and has an excess expected return of 6% for market risk. What is the fut..

Define the remedy the plaintiffs are seeking : Define the "tort" involved and explain the details of the case that led you to your conclusion. Define the type of damages the plaintiffs are claiming. Define the remedy the plaintiffs are seeking

Identify the key and underlying issues : Identify the key and underlying issues. This is not a simple listing, but more of an in-depth analysis and how these apply to the concepts and theories you have learned within the course.

User Account

All Pages

What is the expected return of security

Reference no: EM131401875

Reference no: EM131401875

Questions Cloud

Reviews

Write a Review

Finance Basics Questions & Answers

Financial reporting and analysis

A report on financial accounting

Describe the types of financial ratios

Differences between sole proprietorship and corporation

Prepare a cash budget statement

What are the implied interest rates

State pricing theory and no-arbitrage pricing theory

Small business administration

Effect of financial leverage

Evaluate the basis for the payment to the lender

Importance of opps, ipps, mpfs and dmepos

Time value of money

Assured A++ Grade

Academics

Major Subjects

Majors

Get In Touch

TERMS & POLICIES

HELP & SUPPORT