FIN2601 Assignment 1 Semester 1 2023 (830786)

FIN2601
ASSIGNMENT 1
SEMESTER 1
2023

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1. 2 𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑟𝑒𝑡𝑢𝑟𝑛 = ∑(𝑝𝑟𝑜𝑏𝑎𝑏𝑖𝑙𝑡𝑦 ∗ 𝑟𝑒𝑡𝑢𝑟𝑛)

𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑟𝑒𝑡𝑢𝑟𝑛(𝑈𝑟𝑏𝑎𝑛 𝐹𝑜𝑜𝑑𝑖𝑒) = 0.20 ∗ −15% + 0.50 ∗ 20% + 0.30 ∗ 60% = 0.25

𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑟𝑒𝑡𝑢𝑟𝑛(𝑊𝑖𝑐𝑘𝑒𝑑 𝐶ℎ𝑒𝑓) = 0.20 ∗ 20% + 0.50 ∗ 30% + 0.30 ∗ 40% = 0.31


𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑟𝑒𝑡𝑢𝑟𝑛 𝑜𝑓 𝑎 𝑝𝑜𝑟𝑡𝑓𝑜𝑙𝑖𝑜 = 0.75 ∗ 0.25 + 0.25 ∗ 0.31 = 0.265 = 26.50%



2. 3 The Range is the difference between the lowest and highest values




3. 1 𝜎
𝐶𝑜𝑒𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑡 𝑜𝑓 𝑣𝑎𝑟𝑖𝑎𝑡𝑖𝑜𝑛 =
𝜇

State of Rate of Expected
𝑟 − 𝐸(𝑟) 𝑝 𝑟 − 𝐸 𝑟
economy Probability return return
Strong 0,5 45% 0,225 0,16 0,01280
Normal 0,4 15% 0,0600 - 0,14 0,00784
Weak 0,1 5% 0,0050 - 0,24 0,00576
0,2900 0,02640
𝜎 = √0.02640 = 0,162480768

0.1625
𝐶𝑜𝑒𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑡 𝑜𝑓 𝑣𝑎𝑟𝑖𝑎𝑡𝑖𝑜𝑛 = = 0.56
0.29


4. 3 State of Rate of Expected
𝑟 − 𝐸(𝑟) 𝑝 𝑟 − 𝐸 𝑟
economy Probability return return
Weak 0,1 -14% -0,0140 - 0,20 0,00400
Below 0,2 -4% -0,0080 - 0,10 0,00200
Average 0,4 6% 0,0240 - 0,00000
Above 0,2 16% 0,0320 0,10 0,00200
Strong 0,1 26% 0,0260 0,20 0,00400
0,0600 0,01200

𝜎 = √0.012 = 0,109544512


5. 4 𝐶𝑜𝑚𝑝𝑎𝑛𝑦’𝑠 𝑏𝑒𝑡𝑎 = 30% ∗ 1.20 + 20% ∗ 0.80 + 15% ∗ 1.30 + 35% ∗ 0.60 = 0.9250




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