Consider an asset that costs $120 today. You are going to hold it for 1 year and then sell it. Suppose that there is a 25 percent chance that it will be worth $100 in a year, a 25 percent chance that it will be worth $115 in a year, and a 50 percent chance that it will be worth $140 in a year.
What is its average expected rate of return?
Instructions: Round all answers to two decimal places. If you are entering a negative number, be sure to include a negative sign (-) in front of that number.
Next, figure out what the investment's average expected rate of return would be if its current price were $130 today.
Does the increase in the current price increase or decrease the asset's average expected rate of return?
The increase in price (Click to select)decreasesincreases the expected return on the asset.
At what price would the asset have a zero average expected rate of return?
Consider an asset that costs $120 today. You are going to hold it for 1 year and then sell it. Suppose that there is a 25 percent chance that it will be worth $100 in a year, a 25 percent chance that it will be worth $115 in a year, and a 50 percent chance that it will be worth $140 in a year.