Question
Consider the investment in one stock asset. The current purchasing price of it is $20. The bet payoff in one year is given below. Market
Consider the investment in one stock asset. The current purchasing price of it is $20. The bet payoff in one year is given below.
| Market Condition | Probability | Dividend | Price |
| Good | 0.3 | $ 3 | $ 23 |
| Average | 0.4 | $ 1 | $ 21 |
| Bad | 0.3 | $ 0 | $ 17 |
The risk free rate is 4%. Market risk premium is 6%. The standard deviation of holding-period returns of the market is 20%. The correlation between the bet payoff and the market portfolio is 0.6.
What's the present value based on certainty equivalence approach (answer with two decimal places)?
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Income Tax Fundamentals 2013
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
31st Edition
1111972516, 978-1285586618, 1285586611, 978-1285613109, 978-1111972516
