University : The University Of NewCastle UniLearnO is not sponsored or endorsed by this college or university.
Subject Code : ACFI3018
Country : Australia

Assignment Task


1. Your client is considering investment in one of the 3 assets: Stock A, Stock B, and Stock C. The probability distribution of returns on stocks A, B, and C are given in the following table. You may assume that the risk-free interest rate is 5% per annum.

State Probability Stock A Stock B Stock C
1 10% 10% 50% 30%
2 20% 15% 25% 4%
3 20% 20% 15% 6%
4 10% 25% -20% -10%


2. On the basis of excess returns per unit of risk, which stock would you recommend to your client?

3. On the basis of skewness, which stock would you recommend to your client?

4. Suppose you are bearish on BHP and decide to sell short 100 shares at the current market price of $40 per share. If the broker’s initial margin requirement is 60% of the value of the short position and the maintenance margin is 30%. How high can BHP’s price increase before you get a margin call?

5. Do you think the investments in commodities can hedge against equity market volatility based on your results?

6. Use Microsoft Excel’s Solver add-in to derive the efficient frontier of risky assets for a portfolio comprising the five stocks that you have been asked to analyze. When calculating expected returns, you should use the Capital Asset Pricing Model. The market consensus forecast for the expected market return is 10% per annum and the expected risk-free rate of interest is 5% per annum?

7. Assume that your coefficient of risk aversion is What is the combination of the optimal risky portfolio and risk-free asset that would maximize your utility?

8. Create equally weighted portfolios comprising three industries of past winners and three industries of past losers and report the historical mean, standard deviation of returns, Sharpe ratio, and Jensen’s alpha for the winner and loser portfolios?

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  • Posted on : January 20th, 2024

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