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Which of the options below best completes the following statement? An investor with a higher...

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Finance

Which of the options below best completes the following statement? An investor with a higher degree of risk aversion, compared to one with a lower degree, will most prefer investment portfolios

multiple choice

  • with higher risk premiums.

  • that are riskier (with higher standard deviations).

  • with lower Sharpe ratios.

  • with higher Sharpe ratios.

Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $115,000 or $270,000 with equal probabilities of 0.5. The alternative risk-free investment in T-bills pays 4% per year. a. If you require a risk premium of 4%, how much will you be willing to pay for the portfolio? (Round your answer to the nearest whole dollar amount.)

Price= b. Suppose that the portfolio can be purchased for the amount you found in (a). What will be the expected rate of return on the portfolio? (Round your answer to the nearest whole number.)

Rate of return=

c. Now suppose that you require a risk premium of 12%. What price are you willing to pay? (Round your answer to the nearest whole dollar amount.)

Price=

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