# EC3333 MidTermPaper2011Fall_answer - EC3333 NATIONAL...

This preview shows pages 1–4. Sign up to view the full content.

EC3333 NATIONAL UNIVERSITY OF SINGAPORE EC3333 FINANCIAL ECONOMICS I: MID-TERM (SEMESTER I : AY2011-2012) Time Allowed: 1.5 Hours INSTRUCTIONS TO CANDIDATES 1. This examination paper contains 3 questions and comprises 6 printed pages including this front page. The last page provides a formula which you may find useful. 2. Answer all questions. 3. Total marks are 30 . 4. Use question paper t o a n sw e r . W r i t e d ow n y o u r Matriculation Number, Name and Tutorial Group Number (e.g. W1, W2 etc.) on your question paper. 5. This is a CLOSED BOOK examination.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
EC3333 2 1. (16 marks) There are 3 assets for an investor to form his/her portfolio. A T-bill has a rate of return of 1%; Risky asset A’s rate of return has an expectation of 3% and a standard deviation of 1%; Risky asset B’s rate of return has an expectation of 5% and a standard deviation of 2%. The rates of return of assets A and B are independent. (a) Please derive the mathematical expression for the efficient frontier. (3 marks) 0004 . 0 ) 1 ( 0001 . 0 ) 1 ( 02 . 0 05 . 0 05 . 0 ) 1 ( 03 . 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 0004 . 0 )] 05 . 0 ( 50 1 [ 0001 . 0 )] 05 . 0 ( 50 [ ) 1 ( ) 05 . 0 ( 50 2 2 2 2 2 2 2 Er Er Er B A A A r A (b) Please solve for expected rate of return of the minimum-variance portfolio constructed from the two risky assets. (3 marks) . 034 . 0 05 . 0 5 1 03 . 0 5 4 5 4 0004 . 0 0001 . 0 0004 . 0 ) , cov( 2 ) , cov( : 5 1 5 4 0 0004 . 0 ) 1 ( 2 0001 . 0 2 2 2 2 2 Er r r r r e Alternativ d d B A B A B A B A B A A A A r
EC3333 3

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}