Fina 3480

FINA 3480 – Fall 2011

Group Assignment Number V– Answer Sheet

7-1. (.15)(.20) = .030

(.20)(.16) = .032

(.40)(.12) = .048

(.10)(.05) = .005

(.15)(-.05) = -.0075

.1075 or 10.75% = expected return

To calculate the standard deviation for General Foods, use the formula

n

VARi = Σ [PRi-ERi]2Pi

i=1

VARGF = [(.20-.1075)2.15] + [(.16-.1075)2.20] +

[(.12-.1075)2.40] + [(.05-.1075)2.10]

+ [(-.05-.1075)2.15]

= .00128 + .00055 + .00006 + .00033 + .00372

= .00594

Since σi = (VAR)1/2

the σ for GF = (.00594)1/2 = .0771 = 7.71%

7-2. (a) (.25)(15) + (.25)(12) + (.25)(30) + (.25)(22) = 19.75%

(b) (.10)(15) + (.30)(12) + (.30)(30) + (.30)(22) = 20.70%

(c) (.10)(15) + (.10)(12) + (.40)(30) + (.40)(22) = 23.50%

7-3. (a) (1) {3 decimal places} (1/3)2(10)2 = 11.089

+ (1/3)2( 8)2 = 7.097

+ (1/3)2(20)2 = 44.360

+ (2)(1/3)(1/3)(.6)( 8)(10) = 10.645

+ (2)(1/3)(1/3)(.2)(20)(10) = 8.871

+ (2)(1/3)(1/3)(-1)(20)( 8) = -35.485

46.577

variance = 46.577; σ = 6.82%

(2) variance = (.5)2(8)2 + (.5)2(20)2 + 2(.5)(.5)

(-1)(20)(8)

= 16 + 100 - 80

= 36

σ = 6%

(3) variance = (.5)2(8)2 + (.5)2(16)2 +

2(.5)(.5)(.3)(8)(16)

= 16 + 64 + 19.2

= 99.2

σ = 9.96%

(4) variance = (.5)2(20)2 + (.5)2(16)2 +

2(.5)(.5)(8)(20)(16)

= 100 + 64 + 128

= 292

σ = 17.09%

(b) (1) variance = (.4)2(8)2 + (.6)2(20)2 + 2(.6)(.4)

(-1)(8)(20)

= 10.24 +...