Suppose a 1-year government bond is offering a 10% rate of return. Ankit has Rs 10,000, which he
can invest in government bonds or lend to his friend Suresh. He believes that Suresh will pay back
the promised amount with an 80% probability and will pay back nothing with a 20% probability.
What is the default premium that Ankit should ask from Suresh?
6406533484466.
37.50%
6406533484467.
27.50%
6406533484468.
17.50%
6406533484469.
10.00%
A published solution is not available for this question yet.
There are two assets: a risk-free asset that offers a 5% rate of return and a risky asset that has an
expected rate of return of 15% and a standard deviation of 10%. What is the slope of the budget
line of a portfolio consisting of these two assets?
6406533484490.
1.5
6406533484491.
1
6406533484492.
-1
6406533484493.
-1.5
A published solution is not available for this question yet.
An asset A has a correlation of 0.2 with the market and a standard deviation of 20%. If the market
return has a standard deviation of 5%, what is the beta of asset A?
6406533484494.
-0.2
6406533484495.
0.2
6406533484496.
0.8
6406533484497.
3.2
A published solution is not available for this question yet.
You create a portfolio of 16 identical assets that have an expected return of 20% and a standard
deviation of 20%. These 16 assets are uncorrelated with each other. What is the standard deviation
of your portfolio?
6406533484522.
20%
6406533484523.
10%
6406533484524.
5%
6406533484525.
1.25%
A published solution is not available for this question yet.
A garment outlet can be worth 60 thousand in two years with a 25% probability or 150 thousand in
two years with a 75% probability, depending on product demand. The appropriate cost of capital is
10% per year. What is the present value of the outlet? (up to two decimal points)
6406533484538.
100.00 thousand
6406533484539.
105.37 thousand
6406533484540.
115.91 thousand
6406533484541.
127.50 thousand
A published solution is not available for this question yet.
You purchase a farm located near a river for 100 thousand units. You believe that there is a 20%
chance of flooding in the river in the next year. If there is a flood, the produce in the farm gets
destroyed, and the total payoff is 40 thousand units in the next year; otherwise, the farm
generates a payoff of 150 thousand units in the next year. The appropriate cost of capital is 20%
per year. Suppose you finance your purchase with a loan of 80 thousand units and the remaining
amount as equity.
Based on the above data, answer the given subquestions.
What would be the appropriate promised rate of return that the creditor of the loan would
demand?
6406533484470.
20%
6406533484471.
27.5%
6406533484472.
32.5%
6406533484473.
37.5%
A published solution is not available for this question yet.
You purchase a farm located near a river for 100 thousand units. You believe that there is a 20%
chance of flooding in the river in the next year. If there is a flood, the produce in the farm gets
destroyed, and the total payoff is 40 thousand units in the next year; otherwise, the farm
generates a payoff of 150 thousand units in the next year. The appropriate cost of capital is 20%
per year. Suppose you finance your purchase with a loan of 80 thousand units and the remaining
amount as equity.
Based on the above data, answer the given subquestions.
What is the expected payoff for the equity owner in the next year?
6406533484474.
20 thousand
6406533484475.
25 thousand
6406533484476.
32 thousand
6406533484477.
40 thousand
A published solution is not available for this question yet.
Based on the above data, answer the given subquestions.
If Monica pays p for an insurance policy that would pay her 800 units if she suffered a severe
injury, then she would be sure to have an income of 900-p regardless of whether she is injured.
What would be the largest price that Monica would be willing to pay for such insurance?
6406533484486.
16 units
6406533484487.
100 units
6406533484488.
160 units
6406533484489.
224 units
A published solution is not available for this question yet.
Based on the above data, answer the given subquestions.
A portfolio is formed with 40% of wealth invested in Asset 1 and 60% of wealth invested in Asset 2.
What would be the expected rate of return of the portfolio?
6406533484498.
0.12
6406533484499.
0.14
6406533484500.
0.16
6406533484501.
0.18
A published solution is not available for this question yet.
Based on the above data, answer the given subquestions.
Suppose you would like to construct a portfolio with an expected rate of return of 15%. What
weights would you put on Asset 1 and Asset 2, respectively?
6406533484506.
40%, 60%
6406533484507.
50%, 50%
6406533484508.
60%, 40%
6406533484509.
70%, 30%
A published solution is not available for this question yet.
Based on the above data, answer the given subquestions.
What is the expected rate of return of the minimum variance portfolio?
6406533484514.
12.22%
6406533484515.
14.44%
6406533484516.
15.56%
6406533484517.
17.78%
**Design Thinking**
**Section Id :** 64065374268
**Section Number :** 14
**Section type :** Online
**Mandatory or Optional :** Mandatory
**Number of Questions :** 28
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**Section Marks :** 35
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No
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A published solution is not available for this question yet.