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Asset valuation and risk  Personal Finance Problem   Laura Drake wishes to estimate the value of an asset expected to...

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Finance

Asset valuation and risk  Personal FinanceProblem   Laura Drake wishes to estimate the valueof an asset expected to provide cash inflows of $4,500for each ofthe next 4 years and $20,724

in 5 years. Her research indicates that she must earn 3​% on​low-risk assets, 7​% on​ average-risk assets, and 13​% on​high-risk assets.

a.  Determine what is the most Laura should payfor the asset if it is classified as​ (1) low-risk,​ (2)average-risk, and​ (3) high-risk.

b.  Suppose Laura is unable to assess the riskof the asset and wants to be certain​ she's making a good deal. Onthe basis of your findings in part

a​,

what is the most she should​ pay? Why?

c.All else being the​ same, what effect doesincreasing risk have on the value of an​ asset? Explain in light ofyour findings in part

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