assignment 3 - The Hong Kong Polytechnic University...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
The Hong Kong Polytechnic University Department of Applied Mathematics Semester 2, 2009/2010 Assignment Three Hand in solutions to questions 1, 2, 3, 4, 5 and 6 by 6:30pm, 30 March. This is worth 2.5% towards your final course mark. Late submissions may not be marked, and if marked will receive reduced or zero credit. 1. In Simpleland there are only two risk stocks A and B, whose details are listed below. Number of shares Price Expected Standard deviation outstanding per share rate of return of return Stock A 200 $2 . 50 20% 10% Stock B 350 $3 . 00 17% 8% Furthermore, the correlation coefficient between the returns of stocks A and B is ρ AB = 1 3 . There is also a risk-free asset, and Simpleland satisfies the CAPM exactly. (a) What is the expected rate of return of the market portfolio? (b) What is the standard deviation of the market portfolio? (c) What is the beta of stock A? (d) What is the risk-free rate in Simpleland? 2. Election Wizards, Inc. (EWI) has a new idea for producing TV sets, and it is planning to enter the development stage. Once the product is developed (which will be at the end of 1 year), the company expects to sell its new process for a price p , with expected value ¯ p = $22 M . However, this sale price will depend on the market for TV sets at the time.
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern