HW 2 Finance

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Colorado State University, Fort Collins *

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530

Subject

Finance

Date

Apr 3, 2024

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pdf

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12

Uploaded by ChiefMoonHyena41

HW 2 JYflE_BQ@ut (?){http://www.acns.colostate.edulsingle-sign-on-using-shibboleth/#1471272725675-5603b487 -ebab) Due Oct 30 at 11:59pm Points 25 Questions 19 Available after Oct 23 at 8am Time Limit None Attempt History Attempt Time Score LATEST Attempt 1 66 minutes 24 out of 25 () Correct answers will be available on Oct 31 at 8am. Score for this quiz: 24 out of 25 Submitted Oct 30 at 3:53pm This attempt took 66 minutes. Question 1 1/1 pts You observe the following IBM annual returns over the last 3 years: 10%, -5%, 2%. What is the best description of this formula? .10—.05+-.02 3 T r-bar is the arithmetic mean r-bar is the geometric mean r-bar is the variance r-bar is the standard deviation
Question 2 171 pts You observe the following IBM annual returns over the last 3 years: 10%, -5%, 2%. What is the best description of the formula shown below? .10—.05+.02 3 when answering this question. Assume 1 = (10 7)* (=05 7)*+(:02—7)" _ . = This is the sample variance This is the population variance This is the standard deviation This is the geometric mean Question 3 1/1 pts You observe the following IBM annual returns over the last 3 years: 10%, -5%, 2%. What is the best description of this formula? (1 +.10) (1 —.05) (1 +.02)](5) —1 This is the geometric return This is the arithmetic return This is the cumulative return over 3 years This is the additive return over 3 years
Question 4 171 pts Assume that your portfolio has an expected return of 22% and a standard deviation of returns of 41.6%. What is the 5% Value-at-Risk (VaR)? -46.22% —_— 0.22 - 1.64*0.416 = - 46.22% -23.15% 23.15% 46.31% Question 5 1.5/1.5 pts A stock has an expected return of 16% with a standard deviation of 0.20. Assume you can borrow and lend risk-free at 5%. Assume your portfolio can include this one risky asset and/or the risk-free investment. What is the expected return and standard deviation of a portfolio for an investor with 50% of her wealth in the risky asset and 50% in the risk-free investment? E[r] = 10.5%, sigma=10% ' E[r] = .5*.16 + .5*.05 = 10.5% E[r] = 10.5%, sigma=20% E[r] = 16%, sigma=10%
E[r] = 16%, sigma=20% Question 6 1.5/1.5 pts A stock has an expected return of 16% with a standard deviation of 0.20. Assume you can borrow and lend risk-free at 5%. Assume your portfolio can include this one risky asset and/or the risk-free investment. What is the expected return and standard deviation of a portfolio for an investor with 150% of her wealth in the risky asset and the rest in the risk-free investment? E[r] = 21.5%, sigma=30% ' E[r] = 1.5*.16 + -.5*.05=21.5% - sigma = 1.5%/20 = 30% E[r] = 21.5%, sigma=9% E[r] = 16%, sigma=20% E[r] = 16%, sigma=30% Question 7 1.5/1.5 pts Assume the price of a Schwab Small-Cap index fund is $45 per share, the annual expected return is 16%, and the annual standard deviation is 0.25. Assume you have $10,000 of investment equity and that you want to buy the Schwab Small-Cap fund using your money and some of the broker's money such that your total expected annual return on your portfolio is 22%. Assume you can borrow at 7% annually. What is the portfolio weight in the Small-Cap index fund such that the expected return on your portfolio is 22%7
1.66 22 = w(.16) + (1-w)(.07) w = 1.6666 -.666 Question 8 1.5/ 1.5 pts Assume that you have $10,000 of your own money in your account. Assume you use these funds and some margin to create a portfolio with investment weights of 1.4 in a risky asset and -.4 in a risk-free asset. How much money do you need to borrow? $4,000 410,000 = 4,000 The negative sign on the .4 indicates that you are borrowing J $7,143 $10,000 $14,000 Question 9 2/ 2 pts
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