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[Total: 25 marks] Consider a market with two kinds of stock. A market model gives the information on future daily returns of stock 1 and
[Total: 25 marks] Consider a market with two kinds of stock. A market model gives the information on future daily returns of stock 1 and stock 2 as follows: Scenario Probability Daily return Ki Daily return K2 0.25 - 10% 15% 0.3 10% W3 0.45 15% 5% wi 5% (a) [4 marks] Compute the expected daily returns of stock 1 and stock 2. (b) [6 marks] Compute the variances and the covariance of daily returns of stock 1 and stock 2. (c) (5 marks] If you need to choose one of the two stocks to invest, which stock will you choose to invest? Briefly explain why. (d) [5 marks) Find the weights of the portfolio with minimum risk among all attainable portfolios consisting of stock 1 and stock 2. (e) [5 marks] The current prices of stock 1 and stock 2 are $100 and $50, respectively, and a large company holds 5,000 shares of stock 1 and 10,000 shares of stock 2. What is the 1-day 99% VaR of this investment portfolio? [Total: 25 marks] Consider a market with two kinds of stock. A market model gives the information on future daily returns of stock 1 and stock 2 as follows: Scenario Probability Daily return Ki Daily return K2 0.25 - 10% 15% 0.3 10% W3 0.45 15% 5% wi 5% (a) [4 marks] Compute the expected daily returns of stock 1 and stock 2. (b) [6 marks] Compute the variances and the covariance of daily returns of stock 1 and stock 2. (c) (5 marks] If you need to choose one of the two stocks to invest, which stock will you choose to invest? Briefly explain why. (d) [5 marks) Find the weights of the portfolio with minimum risk among all attainable portfolios consisting of stock 1 and stock 2. (e) [5 marks] The current prices of stock 1 and stock 2 are $100 and $50, respectively, and a large company holds 5,000 shares of stock 1 and 10,000 shares of stock 2. What is the 1-day 99% VaR of this investment portfolio
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