Solution_Final_spring08

# Solution_Final_spring08 - Points breakdown Question 1:...

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Points breakdown Question 1: 10+(5) Question 2: 5+5+5+5+(5) Question 3: 10+10+5 Question 4: 10+5+5+5 Question 5: 10+10

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Question 1 a) The first blank is solved from 950 = 1000 1 + ? <=> ? = 0.0526 = 5.26% The second blank is solved from 981.79 = ? 1.065 + ? 1.065 ± 2 + 1,000 1.065 ± 2 <=> ? = 55 = 5.5% The third blank is solved from ? = 80 1.075 + 80 1.075 ± 2 + 1,080 1.075 ± 3 = 1,1013.01 b) The solution to this problem comes from the equation ? = 80 1.075 ± 1 4 + 80 1.075 ± 5 4 + 80 1.075 ± 9 4 = 1,069.47
Question 2 a) Expected return is 11% and standard deviation 6% b) Return of T bills is 5% (1/20), return on stocks is -3.3% (-1/30) and overall return is 0% (0/50) c) The expected return in December 31 is 20 44 5% + 24 44 15% = 10.45% The standard deviation is 5.45% d) You need to have again 60% of the value in stocks and 40% in Tbills. This means to have 17.6 million in Tbills and 26.4 in stocks. So, he needs to buy 2.4million in stocks and sell the same amount in Tbills

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## This note was uploaded on 03/30/2011 for the course FIN 5514 taught by Professor Jaffe during the Three '11 term at University of New South Wales.

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Solution_Final_spring08 - Points breakdown Question 1:...

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