BNU-HKBU United International College
Division of Science and Technology
FINM3093 Investments
Assignment 1
Deadline: Before 5pm of 18th, Sep, 2015
Problem 1:
Consider the following limit-order book of a specialist. The last trade in the stock
occurred at

Solution to Assignment 1
Q1.
a. The buy order will be filled at the best limit-sell order price: $50.25
b. The next market buy order will be filled at the next-best limit-sell order price:
$51.50
c.
You would want to increase your inventory. There is cons

BNU-HKBU United International College
Division of Science and Technology
FINM3093 Investments
Assignment 2
Deadline: Before 5pm of 25th, Sep, 2015
Problem 1
Derive the probability distribution of the 1-year HPR on a 30-year U.S. Treasure bond with an
8% c

Solution to Assignment 2
Problem 1
Probability distribution of price and one-year holding period return for a 30-year U.S.
Treasury bond (which will have 29 years to maturity at years end):
Coupon
Economy
Probability
YTM
Price
Capital Gain
HPR
Interest
Bo

BNU-HKBU United International College
Division of Science and Technology
FINM3093 Investments
Assignment 3
Deadline: Before 5pm of 12th, Oct, 2015
Problem 1
Utility Formula Data
Investment
Standard Deviation,
Expected Return, E(r)
1
0.12
0.30
2
0.15
0.50

Solution to Assignment 3
Problem 1
Utility for each investment = E(r) 0.5 4 2
We choose the investment with the highest utility value, Investment 3.
Expected
Investment return
E(r)
1
0.12
2
0.15
3
0.21
4
0.24
Standard
deviation
0.30
0.50
0.16
0.21
Utility

BNU-HKBU United International College
Division of Science and Technology
FINM3093 Investments
Assignment 4
Deadline: Before 5pm of 19th, Oct, 2015
Question 1
A pension fund manager is considering three mutual funds. The first is a stock fund, the
second i

Solution to Assignment 4
Question 1
a) The parameters of the opportunity set are:
E(rS) = 20%, E(rB) = 12%, S = 30%, B = 15%, = 0.10
From the standard deviations and the correlation coefficient we generate the
covariance matrix [note that Cov(rS , rB ) S

BNU-HKBU United International College
Division of Science and Technology
FINM3093 Investments
Assignment 5
Deadline: Before 5pm of 26th, Oct, 2015
Problem 1
Assume that the risk-free rate of interest is 6% and the expected rate of return on
the market is

Solution to Assignment 5
Problem1
a) Since the stocks beta is equal to 1.2, its expected rate of return is:
.06 + [1.2 (.16 .06)] = 18%
E(r)
D1 P P
P $50 $6
1
0
0.18 1
P $53
1
P
$50
0
b) The series of $1,000 payments is a perpetuity.
should be discount