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IB253 Principles of Finance 1 Notes

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This document contains all the notes from the synchronous and asynchronous lectures throughout the year and is split up lecture by lecture. This document on its own, is sufficient to get a top mark in your end of year exam.

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Exam:

1a)




Robyn’s risk aversion can be described as risk averse as she is willing to pay money to avoid
an actuarily fair gamble. Can also be described as rational. U’(W) > 0, U’’(W) < 0. U = √ W is
another utility equation which references the same preferences.

Part B Question 1

, A is below both lines as it has idiosyncratic risk. B has no idiosyncratic risk and therefore lies
on both the securities market line and the capital market line. Due to this, this means that B
has a higher expected Sharpe Ratio.

QUESTION 2

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