HomeWork 092412

Managerial Homework
Complete the following:
I.
Investment 1            Investment 2
    rj    pj                       rj    pj
-100    .05              -1000    .01
    0    .05                -500    .05
100    .05                     0    .53
200    .80                 500    .40
300    .05               1000    .01

Find  𝑟 for both investments

Investment1: (-100*.05) + (0*.05) + (100*.05) + (200*.80) +(300*.05) = 175
Investment2:(-1000*.01) + (-500*.05) + (0*.53) + (500*.40) + (1000*.01) = 175


Find σ for both investments
Invest.1: SQRT( (-100-175)^2 + (0-175)^2 + (100-175)^2 + (200-175)^2 +(300-175)^2) =  80.039
Invest.2: SQRT( (-1000-175)^2 + (-500-175)^2 + (0-175)^2 + (500-175)^2 +(1000-175)^2) = 319.2

I1. 175/80.039= 2.18 ** more risky
I2. 175/319.18=.55


II.
Assume you face an investment such that 𝑟=1000 and σ=300
What is the probability that this investment makes less than 0? 300? 1000? 1500?


1.  0-1000/300 ---> -3.33; P = .0004
2. 300-1000/300----> 2.33; P = .9901
3. 1000-1000/300---> 0; P = .5000
4. 1500-1000/300---> 1.64; P = .9495