Reference no: EM132470237
Assignment 1
1. There are two companies: Hamid Inc., and Hamdan Inc. Demand for each Company's product and sales depend on whether the economy is strong, normal or weak. Probabilities of each state and the sales growth are given below.
state Probability (%) Ilamdan IncSales gamut Inc Sales
growth (%) Growth 004
Strong 30 90 45
Normal 40 I S I5
weak 30 - 60 I
Question a). Calculate expected mean sales growth for Hamid Inc., and Hamdan Inc., sales growth and interpret.
Question b). Calculate the variance and standard deviation of Harm(' Inc.. and Hamdan Inc., sales growth and interpret.
Question c). Calculate the covariance between Hamid Inc., and Haindan Inc., sales growth and interpret.
2.
Question a) What is the expected return on a bond if the return is 9% with a probability of 0.67 and the return is 3% with a probability of 0.33? What is the standard deviation of the returns on this bond?
Question b) Would risk averse people prefer this bond or one with an identical expected return and a standard deviation of 4.5? Why?