Asset valuation and risk Personal Finance Problem Laura Drake wishes to estimate the value of an asset expected to provide cash inflows of $3,800 for each of the next 4 years and $18,194 in 5 years. Her research indicates that she must earn 3% on low-risk assets, 6% on average-risk assets, and 16% on high-risk assets. a. Determine what is the most Laura should pay for 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 risk of the asset and wants to be certain she's making a good deal. On the basis of your findings in part a, what is the most she should pay? Why? c. All else being the same, what effect does increasing risk have on the value of an asset? Explain in light of your findings in part a. (Round to the nearest cent.) a. (1) The most Laura should pay for the asset if it is classified as low-risk is $ (2) The most Laura should pay for the asset if it is classified as average-risk is $. (Round to the nearest cent.) (3) The most Laura should pay for the asset if it is classified as high-risk is $ (Round to the nearest cent.) b. Suppose Laura is unable to assess the risk of the asset and wants to be certain she's making a good deal. On the basis of your findings in part a, the most she should pay is $. (Round to the nearest cent.) c. All else being the same, what effect does increasing risk have on the value of an asset? Explain in light of your findings in part a. (Select the best answer below.)
Asset valuation and risk Personal Finance Problem Laura Drake wishes to estimate the value of an asset expected to provide cash inflows of $3,800 for each of the next 4 years and $18,194 in 5 years. Her research indicates that she must earn 3% on low-risk assets, 6% on average-risk assets, and 16% on high-risk assets. a. Determine what is the most Laura should pay for 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 risk of the asset and wants to be certain she's making a good deal. On the basis of your findings in part a, what is the most she should pay? Why? c. All else being the same, what effect does increasing risk have on the value of an asset? Explain in light of your findings in part a. (Round to the nearest cent.) a. (1) The most Laura should pay for the asset if it is classified as low-risk is $ (2) The most Laura should pay for the asset if it is classified as average-risk is $. (Round to the nearest cent.) (3) The most Laura should pay for the asset if it is classified as high-risk is $ (Round to the nearest cent.) b. Suppose Laura is unable to assess the risk of the asset and wants to be certain she's making a good deal. On the basis of your findings in part a, the most she should pay is $. (Round to the nearest cent.) c. All else being the same, what effect does increasing risk have on the value of an asset? Explain in light of your findings in part a. (Select the best answer below.)
Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
7th Edition
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Chapter4: Managing Your Cash And Savings
Section: Chapter Questions
Problem 8FPE: Determining the right amount of short-term, liquid investments. Ella and Aaron Martin together earn...
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