# Use bayesian updating to determine the new bid and

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Chapter 12 / Exercise 12-14
Personal Financial Planning
Billingsley/Gitman
Expert Verified
Use Bayesian updating to determine the new bid and ask prices you will set for one share of Dell after you have completed this initial trade. d. After you set your new bid and ask prices, another order comes in. This time, it is a market sell order for one share and you take the other side. Again, you have no idea who you traded with. Immediately after this transaction, you decide to increase the depth of your quote to two shares. Using Bayesian updating, what will be your new bid and ask prices for two shares of Dell?
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Chapter 12 / Exercise 12-14
Personal Financial Planning
Billingsley/Gitman
Expert Verified
2. Efficient Frontier Problem – be sure to email me your spreadsheet There are three risky stocks that you are considering for your investment portfolio. Your job is to combine them in an efficient manner. There is no risk-free investment in this problem. Based on the information given, find the combinations of stocks A, B, and C that will give you the lowest standard deviation for expected returns of 9%, 10%, and 11%. Fill in the table below with the standard deviations (to the nearest basis point) and weights (to the nearest percent) for those expected returns. Be sure to email your spreadsheet to me before you leave the classroom. Please name your attached file “Smith_midterm” where you substitute your last name for “Smith”. Expected Return Standard Deviation A 8% 20% B 10% 25% C 12% 30% Correlation Matrix: A B C A 1.0 0.3 0.4 B 0.3 1.0 0.5 C 0.4 0.5 1.0 Your Solutions: Expected Return Standard Deviation A B C 9% 10% 11%