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How much are you willing to invest today to receive $150 a year for seven years and an additional $1,200 at the end of the
How much are you willing to invest today to receive $150 a year for seven years and an additional $1,200 at the end of the seventh year? Assume this investment is low risk, that is, no riskier than putting money in a bank earning 2%. Now assume that the likelihood of receiving the future cash flows is risky. The risk level is moderate. How much are you willing pay for this investment? What is your revised required rate of return? What is your revised expected rate of return? What do your answers imply about the relationship between required rates of return, expected rates of return and risk
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