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FIN3101_Tutorial_2 (1) - FIN3101 Corporate Finance Dr...

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FIN3101 Corporate Finance Dr Hassan Naqvi Tutorial 2 Question 1. Peter Pan, who is a risk averse investor, is deciding how to divide his money between two assets, pickles and corn, which have the following characteristics: Pickles Corn Expected Return 10% 10% Standard Deviation 5% 5% If the returns on pickles are independent of those on corn, what will be the composition of his optimal portfolio? Question 2. Macrosoft Ltd. is considering the purchase of a machine to manufacture skis. The cost of this machine is $200,000 and it will have a four year working life. The pattern of expected net cash flows, E(NCF), from the new machine is (it is now the beginning of year T): End of Year T T+1 T+2 T+3 E(NCF) 50,000 65,000 60,000
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