Practice_Midterm2 - Question 1: Rosario, Cho and Lang is...

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Question 1: Rosario, Cho and Lang is having you working in the different divisions of the Firm. You were assigned the Research Division. In this division, analysts study and predict the behavior of different risky assets. The final objective is to provide their clients with investment opportunities that beat the competing firms’ offers. Your first assignment was to compute statistics about the behavior of the Stock Market in the last years. You were given this table Year Stock Market Return T-Bill Return 1999 23.6% 4.7% 2000 -10.9% 5.9% 2001 -11.0% 3.8% 2002 -20.9% 1.7% 2003 31.6% 1.0% a) What was the Risk Premium each year? b) What was the Average Risk Premium in the period considered? c) What was the Standard Deviation of the Risk Premium in the period considered?
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Question 2: Your next meeting was with Mr. Edward Edwards. Mr. Edwards is a longtime client of Rosario, Cho and Lang. The Senior Advisor that preceded you built Mr. Edwards the following Portfolio Type of Asset $ Value % of Total Expected Return Standard Deviation Short Term Bonds 200,000 10% 4.6% 1.6% Domestic Large-Cap Equities 600,000 30% 12.4% 19.5% Domestic Small-Cap Equities 1,200,000 60% 16.0% 29.9% Total Portfolio 2,000,000 100% 13.8% 23.1% Mr. Edwards came to you with an additional $2,000,000 ready to be invested. We would like you
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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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Practice_Midterm2 - Question 1: Rosario, Cho and Lang is...

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