# EC3333 MidTermPaper2010Fall_answer - EC3333 NATIONAL...

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EC3333 NATIONAL UNIVERSITY OF SINGAPORE EC3333 FINANCIAL ECONOMICS I: MID-TERM (SEMESTER I : AY2010-2011) Time Allowed: 1.5 Hours INSTRUCTIONS TO CANDIDATES 1. This examination paper contains 4 questions and comprises 5 printed pages including this front page. 2. Answer all questions. 3. Total marks are 25 . 4. Use answer papers to answer questions. Write down your Matriculation Number, Name and Tutorial Group Number on your answer paper. 5. This is a CLOSED BOOK examination.

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EC3333 2 1. (12 marks) There are 3 assets for an investor to form his/her portfolio: A T-bill with return of 4%; Risky asset A with expected return of 6 percent and standard deviation of 2 percent; Risky asset B with expected return of 8 percent and standard deviation of 4 percent. The returns of assets A and B are independent. (a) The investor forms a combined portfolio using only the two risky assets. He/she invests A percent of his/her wealth in the risky asset A and B percent of his/her wealth in the risky asset B. Please write the expectation and variance of the rate of return of the combined portfolio as functions of A . (2 marks) 0016 . 0 ) 1 ( 0004 . 0 ) 1 ( 02 . 0 08 . 0 08 . 0 ) 1 ( 06 . 0 ) 1 ( ) 1 ( 2 2 2 2 2 2 2 A A B A A A r A A A B A A A B A A A Er Er Er r r r (b) Please derive the mathematical expression for the efficient frontier. (2
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## This note was uploaded on 10/30/2011 for the course ECON EC3333 taught by Professor Lu during the Spring '11 term at National University of Singapore.

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EC3333 MidTermPaper2010Fall_answer - EC3333 NATIONAL...

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