Find the expected return and standard deviation, Corporate Finance

Assignment Help:

Question:

(a) You are given the following information on two risky assets A and B.

E(X) = 25% E(Y) = 30%
Var (X) = 16% Var (Y) = 49%

The correlation matrix is ( 1 0.5)
( 1 )

Required:

(i) Find the expected return and standard deviation of returns of the minimum variance portfolio.

(ii) If the two assets X and Y are perfectly correlated, what is the expected return and standard deviation of returns for an equally weighted portfolio? State your assumptions.

(b) An individual has the following utility function u(w) = ln (w). Her initial wealth is Rs 15,000. She has the possibility of participating in the following gamble at a cost of Rs 500, with a 30% chance of winning Rs 6,000, a 50 % chance of winning Rs 1000 and a 20% chance of losing Rs2,000.

(i) If she accepts the gamble, what is her expected utility of wealth?
(ii) What is her certainty equivalent wealth?
(iii) What is her risk premium?
(iv) What is the Savage-Friedman hypothesis about?
(v) If she lost in the first round, what is her expected utility in the second round?
(c) If car insurance was not compulsory by law, would economic agents still buy insurance? Explain.


Related Discussions:- Find the expected return and standard deviation

Valuation as determined by a multiple of EBITDA, is cash considered to be a...

is cash considered to be additive to this method of valuation?

Capital budgeting and the cost of capital, Roman Roads has a number of capi...

Roman Roads has a number of capital projects available for investment this year but has access to a limited amount of capital.  Specifically, the firm has arranged to secure a $25

Weighted average cost of capital, A tax rate of 20% has been introduced in ...

A tax rate of 20% has been introduced in the Frog Islands Republic. The value of Sun corporation is now 100.000€. Bright Star Co. debt has no changed. The required rate of return t

Mncs do increase their risk by borrowing foreign currencies, According to t...

According to those who are in favor of borrowing, the MNCs can achieve lower financing costs and hence their competing ability is improved. But according to the international fishe

Calculate the stock rate of distribution, A owns all of the stock of X.  Th...

A owns all of the stock of X.  The stock's basis is $100.  X has a total of current and accumulated earnings and profits of $50.  X distributes $200 cash to A "with respect to his

Net Working Capital, #questionSelecting Kanton Company''s Financing Strateg...

#questionSelecting Kanton Company''s Financing Strategy and Unsecured Short-Term Borrowing Arrangement. Morton Mercado, the CFO of Kanton Company, carefully developed the estimate

Base case npv, just to be absolutely clear, is this the cash revues less th...

just to be absolutely clear, is this the cash revues less the cost of the project less the initial outlay. Could you provide me with the makeup?.

Calculate the price of maturity assuming, a)    Calculate the price of a Eu...

a)    Calculate the price of a European style call option with 6 months left to maturity assuming a risk-free rate of 3.5% and a non-dividend paying stock which can change in price

Accumulated earnings and profits, This is an accounting term which is appli...

This is an accounting term which is applicable to stockholders of closely going businesses. Accumulated earnings and profits are a company's net profits after subtracting distribut

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd