FIN 102 Week 7 Tutorial
Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit
FIN 102 Week 7 Tutorial
Table 1
1. (Alternative Example 1 in the Lecture Note – the Price of Risk)
Table 1 illustrates the cash flows and market prices (in $) of a risk-free bond and an investment in the market portfolio. Suppose the risk-free rate is 4% as well and the security B pays $600 if the economy is weak and $0 if the economy is strong. What are its no-arbitrage price, expected return, and risk premium?
2. (Alternative Example 2 in the Lecture Note – the Price of Risk)
Consider a risky stock with a cash flow of $1,500 when the economy is strong and $800 when the economy is weak. Each state of the economy has an equal probability of occurring. Suppose an 8% risk premium is appropriate for this particular stock. If the risk-free interest rate is 2%, what is the price of the stock today?
3. (Alternative Example 3 in the Lecture Note – the Price of Risk)
Assume that a kilogram of silver costs 575 USD in New York and 9,800 MXN in Mexico City. If the Peso/Dollar exchange rate is 17.16 MXN /1 USD, is there an arbitrage opportunity if the average transaction cost is $8 per kilogram of silver?
2022-06-01