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

MBA, how the knowledge of corporate finance helps thea multinational compan...

how the knowledge of corporate finance helps thea multinational company to take decision about mergers and acquisition

How concentration of assets in the banking industry, How has the merger act...

How has the merger activity in the past decade affected the concentration of assets in the banking industry? A: Over the last decade, the number of commercial banks declined

What are the consequences of a budget deficit, Question 1: (i) How do ...

Question 1: (i) How do economists go about studying the economics of the public sector? Describe the four stages of analysis (ii) The level of government intervention dif

Tammy, rf is 5% rM is 10% according to the SML and the CAPM, an asset with ...

rf is 5% rM is 10% according to the SML and the CAPM, an asset with a beta of -2 has a required return of negative 5% (=5-2(10-5). can this be possible? Is this a negative asset w

Review the existing legislation regulating banks entities, The Minister of ...

The Minister of Finance decides to review the existing legislation regulating banks and non-banking entities. You have been appointed as Advisor to the Minister to work on the pro

Financial Ratios, I do not understand how ratios are calculated on MSN Mone...

I do not understand how ratios are calculated on MSN Money website. My homework assignment was to look up GM''s income statement and balance sheet for the last quarter and compare

What is the minimum accrual rate, Question: Car Maker Ltd is a multinat...

Question: Car Maker Ltd is a multinational. In one of the countries where it is present, current legislation makes it compulsory for companies to pay a gratuity lump sum at ret

Cost of capital, How does cost of capital vary with debt-to-value ratio?

How does cost of capital vary with debt-to-value ratio?

Red lake mines, Red Lake Mines, Inc. is considering adoption of a new proje...

Red Lake Mines, Inc. is considering adoption of a new project requiring a net investment of $10 million. The project is expected to generate 5 years of net cash inflows of $5 milli

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