Suppose that a security costs $3,000 today and pays off some amount b in one year
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:
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b: 3,0000 3,300 3,600 3,900 4,200
Prob: 0.1 0.2 0.3 0.2 0.2
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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.
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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?
Answers
Status NEW
Posted 23 Jun 2017 07:06 AM
My Price 5.00
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