代写ECON5027 Portfolio Analysis and Investment In-Course Exam 2019代写数据结构语言

In-Course Exam 2019

Portfolio Analysis and Investment

ECON5027

Students should ONLY answer ONE Question.

Question 1

Suppose that an investor has an initial endowment equal to $20,000. The interest rate is 20% The investment opportunity curve is determined by the following function: C1  = g(C0) = 240 ∗ (20,000 −  C0)0.5 . The  average  indifference curve is determined by the following equations: U(C0, C1) = f(C0, C1) = C0  ∗  C1 .

1.1 Find the optimum consumption decision and explain in detail every step    (30%)

1.2 Find the optimum investment decision and explain in detail every step.    (30%)

1.3 What is the optimum financing decision? Are investment and financing decisions independent? Discuss your arguments in detail.    (40%)

Question 2

Suppose that there exist two securities (X and Y) with an annual expected return equal to rx  = 8% and ry = 5% and a standard deviation equal to σx  = 9% and σy= 6%, respectively. The correlation coefficient between the returns of these securities is ρ = -0.8.

2.1 What is the expected return, the variance and the standard deviation of an equally weighted portfolio consisting of the securities X and Y? Describe every step of your calculations in detail.   (40%)

2.2 What is the expected return of a portfolio consisting of the securities X and Y, if the weights of the corresponding securities are chosen to minimize the risk of the portfolio? Describe every step of your calculations in detail.    (40%)

2.3 Discuss and critically evaluate the role of the correlation coefficient in the determination of the portfolio risk-return profile?   (20%)