Efb210 Finance 1
EFB210 Finance 1
Sample Question for Final Exam
THE FOLLOWING INFORMATION RELATES TO QUESTIONS 1 - 5
Davo Corp Ltd is a large investment company, which has investments in two of the following industries: | Expected Return | Beta | Covariance with the Market | Standard Deviation | Mining | ? | ? | 0.068 | 0.50 | Transport | 0.14 | 1.5 | ? | ? | Building | ? | 2.0 | ? | ? | Alcohol | ? | ? | 0.032 | 0.35 | Market Index | ? | 1 | ? | 0.20 | The ten-year bond rate (risk free rate) is 5%. The proportion of the two industries in Davo Corps investment portfolio is as follows: Mining 60% and Alcohol 40%.
QUESTION 1 What is the beta of Mining?
QUESTION 2 What is the expected return on the market?
QUESTION 3 If the firm wanted to restructure its investment portfolio so that it invested equally in all four industry sectors, what would be the covariance of Davo with the market?
QUESTION 4 You construct a portfolio by buying a 55% investment in Alcohol and 45% in Mining. The correlation between the two assets is .48. Provide calculations to show whether this new portfolio is efficient.
QUESTION 5 As each industry invested in will contribute to the variance of Davo Corp Ltd as a whole, the variance of Davo Corp's returns may be calculated as the weighted mean of the individual variances. Choose the most correct answer. (a) True. The variance of the portfolio is the weighted sum of the variances of the individual assets that comprise the portfolio. (b) False. The variance of the portfolio will be less than the variances of the individual assets that comprise the portfolio. (c) False. The variance of the portfolio will be less than the weighted variances of the individual assets that comprise the portfolio if the correlation of the portfolio with the market is less than one. (d) False. The variance of the portfolio will be less than the variances of the individual assets that comprise
Sample Question for Final Exam
THE FOLLOWING INFORMATION RELATES TO QUESTIONS 1 - 5
Davo Corp Ltd is a large investment company, which has investments in two of the following industries: | Expected Return | Beta | Covariance with the Market | Standard Deviation | Mining | ? | ? | 0.068 | 0.50 | Transport | 0.14 | 1.5 | ? | ? | Building | ? | 2.0 | ? | ? | Alcohol | ? | ? | 0.032 | 0.35 | Market Index | ? | 1 | ? | 0.20 | The ten-year bond rate (risk free rate) is 5%. The proportion of the two industries in Davo Corps investment portfolio is as follows: Mining 60% and Alcohol 40%.
QUESTION 1 What is the beta of Mining?
QUESTION 2 What is the expected return on the market?
QUESTION 3 If the firm wanted to restructure its investment portfolio so that it invested equally in all four industry sectors, what would be the covariance of Davo with the market?
QUESTION 4 You construct a portfolio by buying a 55% investment in Alcohol and 45% in Mining. The correlation between the two assets is .48. Provide calculations to show whether this new portfolio is efficient.
QUESTION 5 As each industry invested in will contribute to the variance of Davo Corp Ltd as a whole, the variance of Davo Corp's returns may be calculated as the weighted mean of the individual variances. Choose the most correct answer. (a) True. The variance of the portfolio is the weighted sum of the variances of the individual assets that comprise the portfolio. (b) False. The variance of the portfolio will be less than the variances of the individual assets that comprise the portfolio. (c) False. The variance of the portfolio will be less than the weighted variances of the individual assets that comprise the portfolio if the correlation of the portfolio with the market is less than one. (d) False. The variance of the portfolio will be less than the variances of the individual assets that comprise