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Solution_Final_spring08

# Solution_Final_spring08 - Points breakdown Question 1 10(5...

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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 e) In this question the first step is to know the value in dollars of the expected return in January 1. For the Tbills 5% of 20million is 1 million and for the stocks 15% of 30million is 4.5million. The total dollar return is 5.5million. So, you just need to solve

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Solution_Final_spring08 - Points breakdown Question 1 10(5...

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