Go Home

FBSM Revision 1

1. There are two parts to this question

For each of the following sets of scatter diagrams, choose the one that best describes the type of correlation shown.

Part 1

Which of these scatter diagrams shows a weak positive linear correlation between X and Y?

[pic]

Part 2

Which of these scatter diagrams shows a strong negative linear correlation between X and Y?

[pic]

2. Thimasha is an investor, he is to receive an annuity of £1,360 for six years commencing at the end of year 1. It has a present value of £6,101.

You are required to calculate the rate of interest.

3. There are 2 parts to this question

Nilushan’s internet company has analyzed a proposed project. There are four optional scenarios for the project. The following table shows the profits that each option is likely to generate, depending on sales.

| |High uptake |Medium uptake |Low uptake |

| |Probability = 0.5 |Probability = 0.4 |Probability = 0.1 |

|Option A |£100,000 |£20,000 |-£120,000 |

|Option B |£80,000 |£20,000 |-£40,000 |

|Option C |£80,000 |£30,000 |-£10,000 |

|Option D |£60,000 |£20,000 |£0 |

Part 1

Using the “expected Value” (EV) criterion, calculate the profit that Option A is expected to create.

Part 2

The company feels that its current financial position prevents it from starting further projects that might increase its financial risk.

Which option should the management team choose in order to minimize its risk?...