Two assets' correlation is -0.8. The first has expected return of 9% and standard deviation of 16%, the second has expected return of 13% and standard deviation of 20%.

Calculate the minimum amount of risk (standard deviation) you'll need to take if investing in these two assets. (Provide your answer in percent rounded to two decimals omitting the % sign)

Stock X has a 9.5% expected return, a beta coefficient of 0.8, and a 40% standard deviation of expected returns. Stock Y has a 13.0% expected return, a beta coefficient of 1.3, and a 30.0% 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. Calculate each stock's required rate of return. Round your answers to two decimal places.

   r_x =  %

   r_y =  %

3. Calculate the required return of a portfolio that has $2,000 invested in Stock X and $5,000 invested in Stock Y. Do not round intermediate calculations. Round your answer to two decimal places.

   r_p =  %

Assume that the MPC is 0.8. Assume that the total crowding-out effect is $25 billion. How will an increase in government purchases of $9 billion shift the AD curve?

Select one:

1. It will shift the AD curve right by $20 billion.

2. It will shift the AD curve left by $25 billion.

3. It will shift the AD curve right by $25 billion.

4. It will shift the AD curve left by $20 billion.

Stock X has a 9.5% expected return, a beta coefficient of 0.8, and a 35% standard deviation of expected returns. Stock Y has a 12.0% expected return, a beta coefficient of 1.1, and a 20.0% standard deviation. The risk-free rate is 6%, and the market risk premium is 5%. Calculate each stock's coefficient of variation. Round your answers to two decimal places. Do not round intermediate calculations. CVx = CVy = Which stock is riskier for a diversified investor? 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. 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. 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. 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. 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. Calculate each stock's required rate of return. Round your answers to two decimal places. rx = % ry = % On the basis of the two stocks' expected and required returns, which stock would be more attractive to a diversified investor? Calculate the required return of a portfolio that has $7,000 invested in Stock X and $8,500 invested in Stock Y. Do not round intermediate calculations. Round your answer to two decimal places. rp = % If the market risk premium increased to 6%, which of the two stocks would have the larger increase in its required return?

Suppose that the daily simple returns of a stock in one week were -0.4%, 0.8%, 1.3%, -1.5%, and 0.9%. What are the corresponding daily log returns? What is the weekly simple return of the stock?

Case Study 2: Forecasting Box Office Returns

For years, people in the motion picture industry – critics, film historians, and others – have eagerly awaited the second issue in January of Variety. Long considered the show business bible, Variety is a weekly trade newspaper that reports on all aspects of the entertainment industry; movies, television, recordings, concert tours, and so on. The second issue in January, called the Anniversary Edition, summarizes how the entertainment industry fared in the previous year, both artistically and commercially.

In this issue, Variety publishes its list of All Time Film Rental Champs. This list indicates, in descending order, motion pictures and the amount of money they returned to the studio. Because a movie theater rents a film from a studio for a limited time, the money paid for admission by ticket buyers is split between the studio and theater owner. For example, if a ticket buyer pays $8 to see a particular movie, the theater owner keeps about $4 and the studio receives the other $4. The longer a movie plays in a theater, the greater the percentage of the admission price returned to the studio. A film playing for an entire summer could eventually return as much as 90% of the $8 to the studio. The theater owner also benefits from such a success because although the owner’s percentage of the admission price is small, the sales of concessions (candy, soda and so on) provide greater profits. Thus, both the studio and the theater owner win when a film continues to draw audiences for a long time. Variety lists the rental figures (the actual dollar amounts returned to the studios) that the films have accrued in their domestic releases (United States and Canada).

In addition, Variety provides a monthly Box-Office Barometer of the film industry, which is a profile of the month’s domestic box-office returns. This profile is not measure in dollars, but scaled according to some standard. By the late 1980’s, for example, the scale was based on numbers around 100, with 100 representing the average box-office return of 1980. The figures from 1987 and 1996 are given in the table below and in the file BoxOffice.xlsx in blackboard.

All the figures are scaled around the 1980’s box-office returns, but instead of dollars, artificial numbers are used. Film executives can get a relative indication of the box-office figures compared to the arbitrary 1980 scale. For example, in January 1987 the box-office returns to the film industry were 95% of the average that year, whereas in January 1988 the returns were 104% of the average of 1980 (or, they were 4% above the average of 1980’s figure).

From the time series given in the above table, you will make a forecast for the 12 months of the next year, 1997.

Managerial Report is due on … Thursday, 19 Sept (40 pts)

1. Produce a time series plot of the data. From this graph, do you see a pattern? Can you see any seasonality in the data?
2. Use exponential smoothing to fit the data. Select an appropriate constant a based on the variation you see in the data. Comment on the appropriateness of exponential smoothing on this data set. Plot the predictions from this model on the graph with the original data. How well does this technique fit the data? Make forecasts for 1997.
3. Use regression to build a linear trend model. Comment on the goodness-of-fit of this model to the data (or, how well does R² explain the variance in the data?). Plot the predictions from this model on the graph with the original data.
4. Develop multiplicative seasonal indices for the linear trend model developed in question 3. Use these indices to adjust predictions from the linear trend model from question 3 above for seasonal effects. Plot the predictions from this model on the graph with the original data. How well does this technique fit the data? Make forecasts for the next 12 months of 1997 using this technique.
5. Which forecasting method of those that you tried do you have the most confidence for making accurate forecasts for 1997? Use MAPE (mean absolute percent error) as your criterion to justify your decision.

Enrichment (5 pts): Use Optimization (and Solver in Excel) to find the optimal smoothing constant in problem 2 above (by minimizing the Mean Squared Error or MSE).

Many statistical procedures require that we draw a sample from a population whose distribution is approximately normal. Often we don’t know whether the population is approximately normal when we draw the sample. So the only way we assess whether the population is approximately normal is to examine its sample. Assessing normality is more important for small samples. Below, you’ll see some small samples and you’ll be asked to assess whether the populations they are drawn from can be treated as approximately normal.  

DATA-

1. 2.6	4.2	1.5	2.0	0.6	0.7	6.6
   2.2	9.7	1.8	4.2	4.4	0.6	0.2

   The following data set is given. Determine whether it is reasonable to treat the following sample as though it comes from an approximately normal population. Include any charts or graphs you make in Excel here and justify your answer.  

2. The following normal quantile plot illustrates a sample. Determine whether it is reasonable to treat this sample as though it comes from an approximately normal population. Explain your answer.

3. The following histogram illustrates a sample. Determine whether it is reasonable to treat this sample as though it comes from an approximately normal population. Explain your answer.

4. The following data set is given. Determine whether it is reasonable to treat the following sample as though it comes from an approximately normal population. Include any charts or graphs you make in Excel here and justify your answer.  

Mike Riley is the operation director for WFA (Which used to be known as Water for Africa).WFA is a charitable trust that was set up in the 1970s to provide long- term help for victims of environmental and political crises. WFA specialise in helping the inhabitants of disaster stricken towns and villages install their own water Supplies and improve sanitation facilities.

Because all of the funds have to be raised through the effort of volunteers, the directorate is concerned about mining cost. Mike is constantly under pressure to reduce his stock of sanitation equipment and supplies. Indeed over the last four years he has reduced stock holing across all of the stores from around €10m to 5m (cost of capital (10%) x cost of an items). But now it seems he has gone too far in reducing inventories. His filed manger are compiling of shortage, particular of copper pipe and sealant. From his main store in UK Mike Supplies 14 Regional stores which are close to where the 47 project are underway. The field workers can e-mail orders for any items, in predetermined order quantities, at any time and delivery is usually within three weeks. The expectation is portable electricity generators which are delivered directly from the supplier and take around six months. The cost of administration and delivery for any part is calculated at €45.

On a visit to a new project, Mike called into the regional store and checked the stock records on the computer. Being short of time, he selected 13 items from the 105 on the database-the result are shown in table 30.1.Walking around the store he was concerned to see large quantities of many items. He also noticed that some of the dehydrated food was more than 12 months old and past it sell- by date. He could not find any tubes of sealant but he noticed about 100 lengths of copper pipe in a corner.

Mike was bewildered. The directorate thought too much money was tied up in stock, he thought he had reduced it as far as he could –so much so that the field operation complain of shortages – yet there were heaps of equipment and rotting supplies in the storages.

Question:

1.            Evaluate the stock holding policies at WFA.

2.            What changes should Mike make?

case study question

Miss Yinnary is one of the many women who own their own businesses and her experience is not very different from others, who must contend with being a mother, a spouse and a family cheerleader in addition to owning and operating a business.

She is the owner of the famous Y-Hotel. It was her first business, though she had some family background in this business. Her two sisters were also in the same line of business. But she borrowed some money, put in some of her savings and started her own venture. She was the first woman ever to enter into this business, most of her clients could not understand that a woman could be interested in the hospitality industry. To Step up her game in the hospitality Industry , Miss Yinari is seeking someone who understands innovative entrepreneurship to assist her.

During her rise to success and in management of her hotel business, she also needs to manage a family, stay teaching in university and dealing with community affairs. In her mind, there is nothing more exhilarating than owning her own business, and for her, the fun is in facing the challenges of turning the hotel into a first ever hotel that provide customers an unforgettable experience with innovation

In the present time, more women are making this choice, pursuing entrepreneurship rather than staying as housewives or traditional careers. For the past few years, the number of women starting new ventures is three times as large as the number of men. There are several good reasons for this trend. Some women find that owning a business is the only way to combine a decent income with time for their children by having the flexibility to control their schedules. Others see themselves as unlikely corporate managers and recognizing the gender problem that exists for achieving success, they choose the entrepreneurial route. Still others see entrepreneurship as a way of controlling their lives, pursuing interests that would be impossible in a corporate job.

The dual roles of mother and entrepreneur often conflict, and husbands and wives

tend to develop separate career tracks that often cannot be reconciled. Women can

also find it lonely in a business world, especially if clients are predominantly men,

this was a problem for Yinari too.

Many women, however, have businesses that fit well with their interest and with

women customers. These include services in beauty care, nutrition, education,

entertainment etc. Nevertheless, being in business often exacts a double price for

women, yet for those with determination like Yinari, the rewards are always waiting.

Your Task as Business Consultant , Prepare a report regarding the following issues below :

a.Find a profile of successful Local and International Entrepreneur Women in the hospitality industry and explain the factors that drive their success !

b. As a business consultant, what is the Innovation that you will suggest to miss Yinnary for her hotel? Explain