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Homework answers / question archive / Suppose a risky security pays an average cash flow of $100 in one year

Suppose a risky security pays an average cash flow of $100 in one year

Finance

Suppose a risky security pays an average cash flow of $100 in one year.  The risk-free rate is 5%, and the expected return on the market index is 13%.  If the returns on this security are high when the economy is strong and low when the economy is weak, but the returns vary by only half as much as the market index, then the price for this risky security is closest to:

A) $88

B) $92

C) $93

D) $95

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