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Introduction to Finance HW 4 Price the risky securities 1. Suppose a risky security pays...

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Introduction to Finance HW 4 Price the risky securities 1. Suppose a risky security pays an average cash flow of $100 in one year. The risk-free rate is 5%, and the expected return on the market index is 13%. If the returns on this security are high when the economy is strong and low when the economy is weak but the returns vary by only half as much as the market index what risk premium is appropriate for this security? A) 4% B) 6.5% C)9% D) 11% Explain your answer Use the following information to answer the questions below: larket Prc Cash Flow in One Vear Today 200 2) Based upon the information provided about securities A, B, and C, the risk-free rate of interest is closest to: A) 4% B) 5% C) 8% D) 10% Explain your answer 3) What is the no-arbitrage price for security C? A) $800 B) S1600 C) S3200 D) $4000 Explain your answer Time Line Use the figure for the question(s) below Date s0 $5000 4) Which of the following statements regarding timelines is FALSE? A) Timelines are an important first step in organizing and then solving a financial problem. B) We refer to a series of cash flows lasting several periods as a

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