Assign7

1394 Words Jul 30th, 2015 6 Pages
Question 1
(5 points) Shareholders of Exxon Oil Company face a variety of risks in holding its shares. If the economy falters, people tend to travel less and so there is less demand from the airlines industry for Exxon's fuels. This type of risk that Exxon's shareholders bear is
Your Answer

Score
Explanation
specific/idiosyncratic risk.

systematic/market risk.
Correct
5.00
Correct.
Total

5.00 / 5.00

Question Explanation

A fundamental question about different types of risks.
Question 2
(5 points) Suppose there are three securities (A, B, and C) to choose from, and next year the economy will be in an expansion, normal, or recession state with probabilities 0.29, 0.34, and 0.37, respectively. The returns (%) on the securities in these
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It may help to use the spreadsheet function CORREL to calculate the correlation. {Anthony, Smartphone: No; change in sales 130; Kira, Smartphone Yes; Change in Sales 50; Michael, Smartphone No; Change in Sales 150; Scarlett, Smartphone Yes; Change in Sales 120; Pete, Smartphone No; Change in Sales 40; Angela, Smartphone Yes; Change in Sales 40.} (No more than two decimals in the percentage but do not enter the % sign.)
Answer for Question 6
You entered:

Your Answer

Score
Explanation
-39.88
Correct
10.00
Correct.
Total

10.00 / 10.00

Question Explanation

Calculation of correlation; important to finance and just about anything else.
Question 7
(10 points) It is well known that investors generally do not like to bear risk. For two otherwise identical corporate bonds, the one with more idiosyncratic risk should have a price that is
Your Answer

Score
Explanation
Higher.

The same.
Correct
10.00
Correct.
Total

10.00 / 10.00

Question Explanation

Fundamentals of risk-aversion and what risks are priced.
Question 8
(15 points) Suppose your client is risk-averse but can invest in only one of the three securities, A, B, or C, in an uncertain world characterized as follows. Next year the economy will be in an expansion, normal, or recession state with probabilities 0.42, 0.40, and 0.18, respectively. The returns (%) on the securitiies in these states are as follows: Security A {expansion = +16.38, normal = +9.50, recession = +6.50}; Security B {+11.00, +7.50,

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