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Consider a risky portfolio that you are willing to pay $100,000. The end-of-year cash flow derived from the portfolio will be either $50,000 in recession
Consider a risky portfolio that you are willing to pay $100,000. The end-of-year cash flow derived from the portfolio will be either $50,000 in recession or $150,000 in boom. The alternative riskless investment in T-bills pays 5%. a. If the risk premium of the portfolio is 10%, calculate the probabilities for recession and boom b. Calculate expected return and standard deviation of the portfolio.
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