2.1 ProblemI. Answer.. 2.2 Problem II. Answer.. 2.3 Problem III

2. 1 ProblemI

The task.

Air conditioning for a college dormitory will cost $1. 5 million to install and $200, 000 per year to operate. The system should last 25 years. The real cost of capital is 5%, and the college pays no taxes. What is the equivalent annual cost?

Answer.

PV cost = 1. 5 +. 2 X 14. 09 = $$4, 318, 788. 91.

Equivalent annual cost = $4, 318, 788. 91/14. 09 = = $306, 514

2. 2 Problem II

The task.

During the boom years of 2003–2007, ace mutual fund manager Diana Sauros produced the following percentage rates of return. Rates of return on the market are given for comparison in table 1.

Table 1 – Rates of return


Ms. Sauros	+39. 1	+11. 0	+2. 6	+18. 0	+2. 3
S& P 500	+31. 6	+12. 5	+6. 4	+15. 8	+5. 6

Calculate the average return and standard deviation of Ms. Sauros’s mutual fund. Did she do better or worse than the market by these measures?

Answer.

To calculate the standard deviation I used the software MS EXCEL

						the average value	standard deviation	the average return
Ms. Sauros	39, 1		2, 6		2, 3	14, 6	15, 16625	91, 2296
S& P 500	31, 6	12, 5	6, 4	15, 8	5, 6	14, 38	10, 52198	92, 62938

The formula for calculating average income:

Average income = ((profitableness₁+1)*(profitableness₂+1)* (profitableness_n+1) )-1)*/100%

She's doing worse than the market on these indicators.

2. 3 Problem III

The task.

There are returns and standard deviations for four investments in table 2.

Table 2 – Returns and standard deviations

	Return	Standard deviation
Treasury bills	6%	0%
Stock P
Stock Q	14. 5
Stock R

Calculate the standard deviations of the following portfolios.

a. 50% in Treasury bills, 50% in stock P.

b. 50% each in Q and R, assuming the shares have

- perfect positive correlation

- perfect negative correlation

- no correlation

c. Plot a figure for Q and R, assuming a correlation coefficient of 0. 5.

d. Stock Q has a lower return than R but a higher standard deviation. Does that mean that Q’s price is too high or that R’s price is too low?

⇐ Предыдущая 123 Следующая ⇒