experts, do me a solid and work out correct solutions in the attachments. Thank u

1 .

(i) State the key arguments against modelling market returns using a Gaussian random walk. [3] (ii) Describe the difference in time series modelling between a cross-sectional property and a longitudinal property, including their dependence on the initial conditions imposed on the model. [4] [Total 7]Let R; denote the return on security i given by the following multifactor model: R, =a; +bijl| +biz/2+...+billz +c; where a; and c, are the constant and random parts respectively of the component of the return unique to security i, /1,..., Iz are the changes in a set of the L indices and bak is the sensitivity (factor beta) of security i to factor k. (i) State the category of the above model where: (a) index 1 is a price index, index 2 is the yield on government bonds and index 3 is the annual rate of economic growth. (b) index 1 is the level of Research and Development expenditure, index 2 is the price earnings ratio, index 3 is the level of gearing [2] Consider the following two-factor model for the returns on three assets A, B and C: Asset A B C ai 0.03 0.05 0.1 bil 1 3 1.5 bi.2 N 1.5 (ii) Determine the equation for the expected return on a portfolio which: (a) equally weights the three securities. (b ) has weights x4 =-0.5, xg = 1.5,xc = 0. [4] (iii) Construct a portfolio of securities A, B, C that has a factor beta of 2 on the first factor and 1 on the second factor, i.e. the expected return on the portfolio is: Rp=ap+2/ +ly +Cp. [3](i) Define what is meant by sponsor covenant. [2] (ii) Outline the methods by which the sponsor covenant can be measured. [5] A large manufacturer sponsors a defined benefit pension scheme. The pension scheme has a small funding deficit. Recent trading results have been disappointing and the sponsor's Finance Director has suggested that the future deficit contributions should be reduced and spread over a longer period. (iii) Outline: (a) the investigations; and (b) the actions that the managers of the scheme should consider taking regarding the possible deterioration of the sponsor covenant and the Finance Director's suggestion. [5]The table below shows incremental claim amounts paid on a portfolio of general insurance policies, where claims are assumed to fully run off after three years. Underwriting Development Year Year 0 2 3 2012 504 286 110 35 2013 621 302 120 2014 685 340 2015 801 Past and projected future inflation is given by the following index (measured to the mid-point of the relevant year). Year Index 2012 100 2013 103 2014 105 2015 106 2016 105 2017 107 2018 110 Estimate the outstanding claims reserve using the inflation-adjusted chain ladder technique. [12]