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A project has two possible outcomes. The good outcome returns 70,000 next year and occurs 80.0%...

A project has two possible outcomes. The good outcome returns 70,000 next year and occurs 80.0% of the time. The bad outcome is total failure, returning $0, the other 20.0% of the time. If the risk-free interest rate is 3.0%, the expected market return is 4.0%, and the project beta is 1, what is the price of the project today?

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Answer #1

We see that the price of the project today=(80%*70000+20%*0)/(1+3%+1*(4%-3%))
=53846.1538

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