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EC3333 MidTermPaper2009_Answer - EC3333 NATIONAL UNIVERSITY...

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EC3333 NATIONAL UNIVERSITY OF SINGAPORE EC3333 FANANCIAL ECONOMICS I: MID-TERM (SEMESTER II : AY2008-2009) Time Allowed: 1.5 Hours INSTRUCTIONS TO CANDIDATES 1. This examination paper contains 4 questions and comprises 6 printed pages including this front page. 2. Answer all questions. 3. Total marks are 30 . 4. Use answer papers to answer questions. Write down your Matriculation Number, Name and Tutorial Group Number on your answer paper. 5. This is an OPEN BOOK examination.
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EC3333 2 1. (10 marks) There are two assets that are available for an investor to construct his portfolio: A risky asset with an expected return of 0.13 and a standard deviation of 0.03, and a risk-free T-bill that delivers a 6-percent return. (a) Suppose the investor invests 20 percent of his wealth in the risky asset and 80 percent in the T-bill. What are the expected return and standard deviation of his portfolio? (1 marks) A: 006 . 0 ) 03 . 0 2 . 0 ( 074 . 0 06 . 0 8 . 0 13 . 0 2 . 0 2 2 = × = = × + × = c c c Er σ σ (b) Write down the expression for the Capital Allocation Line? (2 marks) A: c c c p f p f f p p c f c Er r r E r r r E r r E σ σ σ σ σ 3 7 06 . 0
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