CISP 502 01 Please submit in the beginning of class on Sept 24, 2019 Hw1 1. Explain the micro factors and macro factors which affect the cost of money? 2. What are the conclusions of Beta stability tests and Tests based on the slope of the SML? 3. Suppose Asset A has an expected return of 10 percent and a standard deviation of 20 percent. Asset B has an expected return of 16 percent and a standard deviation of 40 percent. If the correlation between A and B is 0.35, what are the expected return and standard deviation for a portfolio comprised of 40 percent Asset A and 60 percent Asset 4. Calculate what is called Beta, b, from the table below (hint: use excel for calculation for beta) and then calculate the expected return of i asset. (hint; use SML equation in Chapter 25 and r =5%, . -9%) B? Year P P 16% 19% -11% -6% 12% 14% 5. Calculate the expected return of portfolio and standard deviation of portfolio of 3 Assets (Security B, C, and D) (Hints: Assume that weights of B, C, and Dare respectively)? Prob Security Security & Security Securty Security E Recession 0.1 30% 29.5% 24.5% 35% -19.5% Below avg 02 30% -9.5% 10.5% -16.5% -55% Average 04 30% 12.5% -1.0% 0.5% 7.5% 22.5% Above avg 02 -5.0% Boom 0.1 Boom 3.0% 42.5% 23.5% -200% 35.5%