# Homework 3 - FINANCIAL MATHEMATICS SILABO GERENCIA...

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SILABO – GERENCIA EMPRESARIAL Universidad Iberoamericana UNIBE Due Date : February 24, 2011 Deliver hard copy at the beginning of class and send the electronic file through email. Note: Use as exercises the study problems of chapter 6 that are in the photocopies of the book Foundations of Finance that is available at the photocopy office located in the basement of the FRA1 building at UNIBE. In all the problems set the student must provide a clear mathematical argument for the response. Otherwise a partial credit will be given for correct answers. Lecture 9: The Meaning and Measurement of Risk and Return Study Problem Exercises Exercises: 6-2, 6-3, 6-5, 6-8, 6-9, 6-10, 6-11 Page 1 of 7 FINANCIAL MATHEMATICS HOMEWORK 3

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Chapter 6 6.2) Summerville Inc. is considering an investment in one of two common stocks. Given this information that follows, which investment is better, based on the risk (as measured by the standard deviation) and return of each? Common Stock A Common Stock B Probability Return Probability Return 0.3 11% 0.2 -5% 0.4 15% 0.3 6% 0.3 19% 0.3 14% 0.2 22% Common Stock A= .3(11%) + .4(15%) + .3(19%)=3.3+ 6 + 5.7= 15 Common Stock B= .2(-5%) + .3(6%) + .3(14%) + .2(22%)= -1+ 1.8 + 4.2 + 4.4 = 9.4
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Homework 3 - FINANCIAL MATHEMATICS SILABO GERENCIA...

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