**ECO 320 Money & Banking Chapter 2_Numerical Exercises 13 and 14_Answer**

**ECO 320 Money & Banking Chapter 2_Numerical Exercises 13 and 14_Answer**

ECO 320 Money & Banking Chapter 2_Numerical Exercises 13 and 14_Answer

Chapter 2: Numerical Exercises 13

Suppose that a security costs $1,500 today.

aCalculate the percentage return on the security if the payoff to the security in one year is $1,000, $1,500, 2,000, or $2,500. (Note: This is the total amount returned to the investor, so you may just calculate the total return and not worry about how this is split up between current yield and capital-gains yield.)

Chapter 2: Numerical Exercises 14:

Suppose that a security costs $3,000 today and pays off some amount bin one year. Suppose that b is uncertain according to the following table of probabilities:

a Calculate the return (in percent) for each value of b. (Note:You may just calculate the total return and not worry about how this is split between current yield and capital-gains yield.)

dSuppose that an investor has a choice between buying this security or purchasing a different security that also costs $3,000 today but pays off $3,300 with certainty in one year. How is an investor’s choice of which security to purchase related to his degree of risk aversion?

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