The Sharpe ratio and Jensen’s alpha of portfolio A are 0.10 and 0.004, respectively. The risk-free rate is 3%, the average return on the market portfolio is 7%, the variance of the market portfolio is 0.09, and the correlation coefficient between A and the market portfolio is 0.7. What is the expected return and the variance of A?

A manufacturer knows that their items have a normally distributed lifespan, with a mean of 7.8 years, and standard deviation of 0.7 years.

If you randomly purchase one item, what is the probability it will last longer than 6 years? (Give answer to 4 decimal places.)

C = 100 + 0.8 Yd

I = 500        X = 600         M = 650         T = 400

but G = G₀ - 0.05Y

G:400

What value of G0 would make income equal to the same value as in Q1? (Don't try to shortcut and just plug previous Y into the new equation for G, gotta solve the new AE equation.)

If Investment falls from 500 to 499, what is change in Y? (ie what is investment multiplier?)

4. Given the information in Question 3, y = −0.8 m, use the quadratic formula to solve for t1 and t2. Note: It is unlikely that you will finish the experiment if you are not able to solve this type of quadratic equation. (20 pts)
(Continued on back page)
y=y0 +v0yt+.5ayt2

Suppose the Canadian economy can be described as follows:

C = 300 + 0.8 Y_d (Y_d is disposable income)

I = 165 (investment spending)

G = 410 (government purchases)

T = 0.25Y (proportional taxes)

X=45(exports are constant)

M =0.1Y(imports depend positively on our own Y)

1. Calculate the equilibrium Y.
2. Find the government budget balance BB=tY-G, given your Y in (i). Is the government running a surplus or deficit or neither?

iii)Now, let’s look at the consumption function C = 300 + 0.8 Y_d (Y_d is disposable income), where 300 was defined as autonomous part of the consumption expenditure. Let’s say the autonomous consumption expenditure drops from 300 to 250. Find the new Y.

4. Find the government budget balance, given your Y in (iii). Is the government running a surplus or deficit or neither?

5. Market Equilibrium: Bingo Inc. has a beta of 0.8, a market price of $30, and recently paid a dividend of $2.00 which is expected to grow at a constant rate of 3%. The risk-free rate is 2% and the market risk premium is 6%.

a. Compute the required rate of return on Bingo stock.

b. Compute the expected return on Bingo stock.

c. Compute the dividend yield and capital gains yield for Bingo’s stock.

d. Is Bingo’s stock in equilibrium? If not, then explain what must happen for Bingo’s stock to be in equilibrium.

A Doctor prescribes a aspirin 134 mg tablet to be taken orally, 0.8 mg of sublingual nitroglycerin should be taken after. What should be some monitoring parameters that someone can follow to ensure efficacy and safety of the medication use?

Stock X has a 9.5% expected return, a beta coefficient of 0.8, and a 30% standard deviation of expected returns. Stock Y has a 12.0% expected return, a beta coefficient of 1.1, and a 25.0% standard deviation. The risk-free rate is 6%, and the market risk premium is 5%.

1. Calculate each stock's coefficient of variation. Round your answers to two decimal places. Do not round intermediate calculations.

   CV_x =

   CV_y =

2. Which stock is riskier for a diversified investor?

   1. For diversified investors the relevant risk is measured by beta. Therefore, the stock with the higher beta is less risky. Stock Y has the higher beta so it is less risky than Stock X.
   2. For diversified investors the relevant risk is measured by beta. Therefore, the stock with the higher beta is more risky. Stock Y has the higher beta so it is more risky than Stock X.
   3. For diversified investors the relevant risk is measured by standard deviation of expected returns. Therefore, the stock with the higher standard deviation of expected returns is more risky. Stock X has the higher standard deviation so it is more risky than Stock Y.
   4. For diversified investors the relevant risk is measured by beta. Therefore, the stock with the lower beta is more risky. Stock X has the lower beta so it is more risky than Stock Y.
   5. For diversified investors the relevant risk is measured by standard deviation of expected returns. Therefore, the stock with the lower standard deviation of expected returns is more risky. Stock Y has the lower standard deviation so it is more risky than Stock X.
   
   I, II, III,IV or V?

3. Calculate each stock's required rate of return. Round your answers to two decimal places.

   r_x = %

   r_y = %

4. On the basis of the two stocks' expected and required returns, which stock would be more attractive to a diversified investor?

   Stock X or Stock Y?

5. Calculate the required return of a portfolio that has $7,500 invested in Stock X and $4,000 invested in Stock Y. Do not round intermediate calculations. Round your answer to two decimal places.

   r_p = %

6. If the market risk premium increased to 6%, which of the two stocks would have the larger increase in its required return? Stock X or Stock Y