QUESTION 1

You are required to construct a portfolio using fund A and fund B. The expected annual return for fund A is 20% and for fund B is 15%. Standard deviation of returns is 15% and 30% for A and B respectively.

1. What should be the weights in fund A and fund B if u want the portfolio expected annual return to be 18%?

2. The correlation between fund A and fund B return is 0.2. What would be the standard deviation of your portfolio constructed in part a?

3. What would be the weighted average risk (standard deviation) of the portfolio?

4. Compared b to c, telling u what?

Question 2

The initial investment in a project is $50 million, the after-tax cash flows generated for next 3 years will be $20 million, $30 million, $50 million respectively. Calculate the IRR of this project.