FIN2601 ASSIGNMENT 1 SEMESTER 2 2025

FIN2601 2025 ASSIGNMENT 1 SEM 2 2025 FIN2601 2025




DISCLAIMER

THE DOCUMENT PRESENTED IS A DEMOSTRATION ON HOW STUDENTS CAN
APPROACH THE ASSIGNMENT FOR FIN2601. IT IS BASED ON PRESCRIBED
MATERIAL AND EXTERNAL RESEARCH. THE DOCUMENT CONTAINS BOTH
SHORT NOTES AND A RESPONSE EXAMPLE FOR EACH QUESTION.
STUDENTS ARE THEREFORE ADVISED NOT TO COPY AND PASTE BUT USE
THE DOCUMENT AS A RESEARCH GUIDE THAT WOULD HELP THEM DRAFT
THEIR OWN FINAL COPIES.

, FIN2601 2025 ASSIGNMENT 1 SEM 2 2025 FIN2601 2025

Question 1

1.1 Calculate the expected return for both VanillaFridge and IcebergsFoam
investment projects. (6 marks)

The expected return (r̄ ) for an investment project is calculated as the sum of each
possible outcome's return multiplied by its probability of occurrence.

The formula used is: 𝒓̄ = 𝜮 (𝒓̄𝒋 × 𝑷𝒓̄𝒋 )


Where

𝒓̄𝒋 is the return for the jth outcome and


𝑷𝒓̄𝒋 is the probability of its occurrence.


For VanillaFridge

Recession: (−0.15) × 0.20 = −0.03

Normal: (0.20) × 0.50 = 0.10

Boom: (0.60) × 0.30 = 0.18

Expected return for VanillaFridge

= −𝟎. 𝟎𝟑 + 𝟎. 𝟏𝟎 + 𝟎. 𝟏𝟖 = 𝟎. 𝟐𝟓 𝒐𝒓̄ 𝟐𝟓%.

For IcebergsFoam

Recession: (0.20) × 0.20 = 0.04

Normal: (0.30) × 0.50 = 0.15

Boom: (0.40) × 0.30 = 0.12

Expected return for IcebergsFoam

= 0.04 + 0.15 + 0.12 = 0.31 𝑜𝑟 31%.