Question 5: [Total 15 marks; 5 marks for each part] The following table provides the share return forecasts and associated probabilities for X Coy. and Y Coy. Answer parts 'a' to 'c' using the information provided. Detailed worked solutions must be presented in your answers, including formulae used, progressive and final answers to the questions. X Coy Probability (%) 60 Return (%) 17.0 12.0 10.0 Y Coy. Return (%) 20.0 10.0 8.0 Probability (%) 30 20 50 20 20 (a) Calculate the expected return on each share. (b) Calculate the variance and standard deviation for each share. (c) Suppose a portfolio comprised of 70% investment in X Coy. and 30% investment in Y Coy. can be constructed. An analyst has estimated that the correlation coefficient of the two-asset portfolio is -0.30, calculate the return and standard deviation of this portfolio. Compare your answer with those reported in parts a. and b. and draw your conclusion. (b) Amy borrowed $10,000 today. She is required to repay equal amounts at the end of each of 7 years, with the first payment starting in four years' time. The relevant interest rate is 8% per annum. How much will be the amount of each payment? Question 5: [Total 15 marks; 5 marks for each part] The following table provides the share return forecasts and associated probabilities for X Coy. and Y Coy. Answer parts 'a' to 'c' using the information provided. Detailed worked solutions must be presented in your answers, including formulae used, progressive and final answers to the questions. Return (%) 17.0 12.0 10.0 X Coy Probability (%) 60 20 20 Y Coy Return (%) 20.0 10.0 8.0 Probability (%) 30 20 50 (a) Calculate the expected return on each share. (b) Calculate the variance and standard deviation for each share. (c) Suppose a portfolio comprised of 70% investment in X Coy. and 30% investment in Y Coy. can be constructed. An analyst has estimated that the correlation coefficient of the two-asset portfolio is -0.30, calculate the return and standard deviation of this portfolio. Compare your answer with those reported in parts a. and b. and draw your conclusion. Question 1: [Total 10 marks; 5 marks for each part] (a) Mary is planning to retire in 10 years, and buy her dream home in Nelson Bay, NSW. The house is currently priced one million in the market and is expected to grow in value each year at a 5% rate. Assuming that she can earn 10% annually on her investments, how much must she invest at the end of each of the next 10 years to be able to buy her dream home when she retires? (b) Amy borrowed $10,000 today. She is required to repay equal amounts at the end of each of 7 years, with the first payment starting in four years' time. The relevant interest rate is 8% per annum. How much will be the amount of each payment
