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

Preferred and common shares, Suppose cabela has 2 classes of shares. Prefer...

Suppose cabela has 2 classes of shares. Preferred and common, Cabela has 2000 shares of preferred, 4000 shares of common outstanding shares. The preferred class is 7% cumulative pr

Explain the negotiation of letter of credit in trade finance, Judges Maurit...

Judges Mauritius Co Ltd imports spare parts for cars from Dubai on a letter of credit basis, payable 60 days from ‘bill of lading' issue date. Each letter of credit is valid for 90

evaluate the critical success factors, 1)   Select an organization that yo...

1)   Select an organization that you are familiar with and evaluate the steps needed to  transform  the business plans into Balance Score Cards & Key Performance Indicators 2)

What is phoenix activity, Q. What is phoenix activity? Phoenix activity...

Q. What is phoenix activity? Phoenix activity is "the evasion of tax and other liabilities, such as employee entitlements, through the deliberate, systematic and sometimes cycl

Determinants of growth of a company in financial terms, Determinants of gro...

Determinants of growth - Profit Margin Dividend Policy   Financial Policy Total asset Turnover

Preview division - forecasting methods, Preview division divides M proporti...

Preview division divides M proportional to preview demand, i.e., each SKU n 2N gets fraction This method is included because it is used by the case company, in combination

Corporate Finance, Calculate the EAR of the following APR: a. APR at 10.8% ...

Calculate the EAR of the following APR: a. APR at 10.8% compounded monthly. (2 marks) b. APR at 8.4% compounded quarterly. (2 marks) c. APR at 9.0% compounded semi-annually. (2 mar

What is an agent and the responsibilities of an agent, What is an agent? Wh...

What is an agent? What are the responsibilities of an agent? Ans: An agent is someone who has the implied or actual authority to act on behalf of another.  The owners whom the

Replacement analysis, The Chang Co is considering the purchase of a new mac...

The Chang Co is considering the purchase of a new machine to replace an obsolete one. The machine being used for the operations has a book value and a market value of zero. However

Explain the traditional view of credit risk, The traditional view of credit...

The traditional view of credit risk relates to borrowers, firms, individuals, or financial institutions. Nevertheless, more and more specialized finance transactions deal with str

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