Halaman 145-149

17.

X P(x)
Improve 0.3
Remains same 0.4
Deteriorate 0.3

µ= ∑ xP(x)

x P(x) xP(x)
$ 15,000 0.3 4500
$ 10,000 0.4 4000
$ 8,000 0.3 2400
-
∑xP(x)= $10,900
a. $10,900
b.Invest Because expected amount is bigger than money invested
C.No, the decision is not clear cut if he is risk averse as risk averse is interested with standard
deviation of the fund, he will be interested to invest if standar deviation is less

19.

x P(x) xP(x) x2P(x)

10 0.2 2 20
6 0.5 3 18
-6 0.3 -1.8 10.8
∑xP(x)= 3.2% ∑X2P(x)=48.8

Expected Value
µ= ∑xP(x)
=3.2%
Standar Deviation
α=√∑x2P(x)-µ2

=√ 48.8-3.22
=√38.56
=6.2%
Invesment in europe expected return -f 3.2% with standar deviation 6.2%

X P(x) xP(x) X2P(x)

18 0.2 3.60 64,80
10 0.5 5.00 50.00
-12 0.3 -3.60 43.20
∑xP(x)=5% ∑x2P(x)= 158
Expected Value
µ = ∑xP(x)
= 5%
Standar deviation
α=√ ∑x2P(x)-α2
=√158-52
=√133
= 11.5%
Invesemt in asia has expected return of 5% with standard deviation is 11.5%

If one is risk neutral then investment in asia is better as it gives higher expected return
if one is risk adverse investment in asia is better as it has smaller deviation

23.
a. Total probability is 1
Probability of recession is given by
1-0.3-0.5= 0.2
The probability of recession is 0.2
b.
wbE(Rb)+wNE(Rn)+wrE(Rr)=0.3(0.15)+0.5(0.10)+0.2(0.02)
=0.045+0.05+0.004
 = 0.099
The expected return of portofolio A is 9.9%

wbE(Rb)+wNE(Rn)+wrE(Rr)= 0.3(0.25)+0.5(0.20)+(0.01)
= 0.075+0.1+0.002
=0.177
The expected return of portofolio B is 17.7%
c.
The expected return is
wAE(RA)+wBE(RB)= 0.099(55%)+0.177(45%)
= 5.445+7965
=13.41%
Expected return of portofolio is 13.41%

24.
a. Total investment in old portofolio is $400,000
inherited house is worth is $200,000
calculate the weights are
wp= 400,000/400,000+200,000
=0,67
wh= 200,000/400,000+200,000
= 0,33
The portofolio expected return is
wsE(Rs)+wbE(Rb)= 0,67(6%)+0,33(8%)

=4.02%=2.64%
=6.66%
Variance Portofolio is
var(Rp)= ws2αs2+wb2 αb2=2wswbβsb αs αb
=(o,67)2(16)2+(0,33)2(20)2+2(0,67)(0,33)(0,38)(16)(20)
= 212.2499
Standar Deviation is
√212.2499=14.57
Standar deviation is 14.57
(b)
Total Investment in Old Portofolio is $400,000
T-bills is worth is $200,000
We Calculate the Weights Are
wp= 400,000/400,000+200,000
= 0.67
wh= 200,000/400,000+200,000
= 0.33
The portofolio expected return is
wsE(RS)+wbE(RB) = 0.67 (6%) + 0.33(3%)
= 4.02% + 0.99%
= 5.01%
The portofolio expected return is 5.01%
Correlation between risk free T-bills and any aset is 0
Variance of portofolio
Var(Rp) = ws2+αs2+ wb αb2+ 2wswbβsb αs αb
= (0,67)2(16)2+(0.33)2(20)2
= 158.4784
Standard Deviation is
√159.4784= 12.59
standar deviation is 12.59