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Chapter 05 Risk and Return: early(prenominal) and Prologue 1. The 1% VaR retrovert be less than -30%. As percentile or prospect of a lessen declines so does the magnitude of that grant. Thus, a 1 percentile probability work produce a fiddling VaR than a 5 percentile probability. 2. The geometric return represents a compounding emersion number and pull up stakes artificially inflate the annual act of the portfolio. 3. No. Since all items atomic number 18 presented in token(a) figures, the input should similarly use nominal data. 4. Decrease. Typically, exemplar deviation exceeds return. Thus, a decline of 4% in severally will artificially return the return per social unit of seek. To return to the proper risk return relationship the portfolio will need to decrease the do of risk free investments. 5. E(r) = [0.3 × 44%] + [0.4 × 14%] + [0.3 × (16%)] = 14% (2 = [0.3 × (44 14)2] + [0.4 × (14 14)2] + [0.3 × (16 14)2] = 540 ( = 23.24% The mean is unchanged, only the standard deviation has increased. 6. a. The holding period returns for the three scenarios atomic number 18: microphone boom:(50 40 + 2)/40 = 0.30 = 30.00% ruler:(43 40 + 1)/40 = 0.10 = 10.00% inlet:(34 40 + 0.50)/40 = 0.1375 = 13.75% E(HPR) = [(1/3) × 30%] + [(1/3) × 10%] + [(1/3) × (13.75%)] = 8.75% (2(HPR) = [(1/3) × (30 8.75)2] + [(1/3) × (10 8.75)2] + [(1/3) × (13.75 8.75)2] = 319.

79 ( = [pic]= 17.88% b. E(r) = (0.5 × 8.75%) + (0.5 × 4%) = 6.375% ( = 0.5 × 17.88% = 8.94% 7. a. Time-weighted fairish returns are based on year-by-year rates of return. | course of focus |Return = [(capital gains + dividend)/price] | |2007-2008 |(110 one C + 4)/100 = 14.00% | |2008-2009 |(90 110 + 4)/110 = 14.55% |...If you motive(prenominal) to get a intact essay, order it on our website: Ordercustompaper.com

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