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Assignment 1 Fin 550

In: Business and Management

Submitted By Kirsna
Words 624
Pages 3
1(a).
AMT = (17.0)+(6.0)+(-10.0)+(-1.5)+(14.0) 5
= 25.5 = 5.1 5

AMB = (7.0)+(2.0)+(-8.0)+(1.5)+(5.0) 5

= 7.5 5 = 1.5

Stock T is more desirable because the arithmetic mean annual rate of return is higher.

B.
(17.0 – 5.1)2 + (6.0 – 5.1)2 + (-10.0 – 5.1)2 + (-1.5 – 5.1)2 + (14.0 - 5.1)2

=.00142 + .00081 + .00231 +. 00044 + .00079
= 0.00577
= 0.00577 / 5 = 0.00115
=0.033911

(7.0 – 1.5)2 + (2.0 – 1.5)2 + (-8.0 – 1.5)2 + (1.5 – 1.5)2 + (5.0 + 1.5)2
= .00030 + .00025 + .00090 + 0 + .00012
= .00127
=.00127/5 = 00025
= 0.01594

C.

CVT = 0.033911 = 0.00678 5.1
CVB = 0.01594 = 0.00319 1.5 By this measure B would be better

D.

GMT=[(18.0) (7.0)(-9.0)(-0.5)(15.0)]1/5-1

=[124.50] 1/5 -1
GMB = [(8.0)(3.0)(-7.0)(2.5)(6.0)]1/5 -1
= [-81]1/5 – 1

(2. A)
Mr. Franklin and his wife are:
-35 years of age -school teachers
-in excellent health/wife in good health -earn about 60,000 per year
-active life style -plan to retire at age 62
-will receive pensions equal to 65%of their annual salaries, plus Social Securitybenefits amounting to 20%of annual salaries.
-savings account -equity in home

Objectives:
Return Requirements: Mr. Franklin and his wife don’t have a large amount of cash but they do have a fairly decent amount in assets.

Risk Tolerance: Mr. Franklin is in excellent health and his wife shows to be in good health, which means they should have a long life expectancy. They have a high income together which shows they have a greater propensity to undertake risk because their incomes can help cover any shortfall.

Constraints:
Liquidity needs:…...

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