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Department
Administration
Course
ADM3352
Professor
All Professors
Semester
Spring

Description
QuestionCreditMark115215315415Multiple Choice40Total100Question 1 15 pointsYou have 10000 to invest for one period one year You can invest in a Treasury bill to earn 4 per year You can also invest in an ETF exchange traded fund that traces the SP 500 index You can buy any fraction of the ETF Assume that the ETF will have with two possible outcomes at the end of the year it will be worth 150 if the state of economy is good it will be worth 100 if the state of economy is bad Dividends on the ETF can be ignored The probabilities of the good and bad states are 03 and 07 respectively 12 points What is the expected value of the ETF at the year end22 points What is the standard deviation of the ETF33 points What is the fair market value of the ETF if it implies 11 risk premium per year43 points If you require 9 expected return on your complete portfolio how should you allocate between the riskfree and the risky assets 53 points If you require an expected return of 20 per year and you are allowed to borrow money at the 5 interest rate how can you achieve it be numerically specific62 points Following 5 but assuming that you can only borrow money at 6 interest rate how can you achieve it Explain whether the standard deviation of your complete portfolio is higher or lower than that in 5 Extra space on next pageQuestion 2 15 pointsConsider the information about two risky assets and one riskfree asset25r ie 000600515s20s12rE18rE60covrrf121221You are encouraged to draw relevant graphs to help solving the problem 1 5 points Identify the minimum variance portfolio and find the expected return and standard deviation25 points Identify the optimal portfolio and find the expected return and standard deviation 33 points An investor has allocated all of his wealth in risky assets 1 and 2 with 75 and 25respectively How should you advice the investor to maximize his expected return without increasing the standard deviation of his portfolio Be numerically specific42 points Following 3 how should you advice the investor to minimize his standard deviation of expected return without decreasing his return Be numerically specific
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