Homework answers / question archive / Question 8 An archaeologist believes that he knows the location of an ancient treasure that can be sold for $1 million (in the next period) if found

Question 8 An archaeologist believes that he knows the location of an ancient treasure that can be sold for $1 million (in the next period) if found

Finance

Share With

Question 8
An archaeologist believes that he knows the location of an ancient treasure that can be sold for $1 million (in the next period) if found. Assuming he is correct, an investment of $400,000 will be needed to recover the treasure with a probability of 0.5. There is also a probability of 0.5 that the entire investment will be lost. The riskless interest rate is 10% and the market risk premium is 8%.

a) What is the expected return on the investment?

b) What is a reasonable beta value for such an investment?