ACTSC-372-1071-Midterm2_exam

# ACTSC-372-1071-Midterm2_exam - University of Waterloo Exam...

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University of Waterloo Exam 2 – ACTSC 372 – WINTER 2007 – Section 001(a) March 2, 2007 UW Student ID Number: (Please write your name INSIDE the booklet ONLY). Duration: 50 minutes There are 6 questions in this exam for a total of 30 points. This is a closed-book exam. The only aid allowed is a calculator.

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(You can use this page if you need additional space.) Total Mark: ACTSC 372, Exam 2 Page 2 of 6
Name (Print): , (Family name) (Given name) 1. [7 points] Consider the following one-factor model, where for security i = 1 , 2 , . . . , we have R i = E( R i ) + β i F + ± i . Security 1 has a beta of 0.4 (i.e., β 1 = 0 . 4) in this model, while security 2 has a beta of 1.4 (i.e., β 2 = 1 . 4). (a) A portfolio made up of securities 1 and 2, and with initial wealth of \$10,000, is constructed so that its beta equals 1 in the above one-factor model. What are the initial amounts invested in each of security 1 and 2 for this portfolio? (b) Based on your answer in (a), and given that the expected return E(

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## This note was uploaded on 11/18/2010 for the course ACTSC 372 taught by Professor Maryhardy during the Spring '09 term at Waterloo.

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ACTSC-372-1071-Midterm2_exam - University of Waterloo Exam...

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