Practice_Final

Practice_Final - Question 1 You have a good friend from...

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Question 1 You have a good friend from college that made a decision of not leaving Santa Barbara, even after graduating. These days, he makes his living by renting rooms in Isla Vista. Among the several houses he rents, there is this one, for which he has a 10 year lease from the true owner. By a strange set of circumstances, the annual lease he pays to the true owner is only $1,000 a year. From this house in particular he collected rent of $20,000 this year. This income is expected to grow 5% every year. As a true Isla Vista landlord, he plans to keep maintenance close to zero. He called you, because the owner asked him if he wanted to buy the house today for $500,000. He is unsure about this, and since he knows you have solid financial expertise, wanted to know your opinion about this deal. After giving some thought to it, you realized the accurate rate of return for the business of renting rooms in Isla Vista is 10%. Should he accept the offer?
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Question 2 In Rosario, Cho and Lang you were given a portfolio to manage. This portfolio has an expected return of 15% and a standard deviation of 30% You are meeting with a client, which is a little weary of all that standard deviation. For that reason he wants to combine that portfolio with some Treasury Bills. The Treasury Bills have a return of 6%. a)
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Practice_Final - Question 1 You have a good friend from...

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