Sevilla & Somers text; Topic 18, exploration 3

The following table contains information on the 2002 resident population of the U.S., by age. (Source: The New York Times Almanac 2004, page 277.)

a.) If a resident of the U.S. is chosen at random, find the probability that he or she is 25 to 44 years old.

P(25 - 44) = 1270419/4486508 = 0.2832

b.) If a resident is chosen at random, find the probability that he or she is older than 24 years old.

P(> 24) = (1270419 + 1068243 + 588542)/4486508 = 0.6524

c.) In what age category does the median age fall?

The median age falls in the 25 - 44 category.

Emery, Finnerty & Stowe - Ch. 6, problems A6, B6, & B10 (a only)-

A6. (Expected portfolio return) Musumeci Capital Management has invested its portfolio as shown here. What is Musumeci’s expected portfolio return?

Solution:

Given that portfolio weight in Money Market securities = 10% = 0.1 and expected return = 4%

Portfolio weight in corporate bond = 20% = 0.2 and expected return = 8%

Portfolio weight in Equities = 70% = 0.7 and expected return = 12 %

Expected return =

Where p is probability and x investment

Then expected return = 0.1*4 + 0.2*8 + 0.7*12 = 0.4 + 1.6 + 8.4 = 10.4 %

B6. (Expected return and risk) Procter & Gamble is considering three possible capital investment projects. The projected returns depend on the future state of the economy as given here.

a. Calculate each project’s expected return, variance, and standard deviation.

b.Rank the projects on the basis of (1) expected return and (2) risk. Which project would you choose?

Since Expected return =

Where p is probability and x investment

Variance =

And Standard deviation =

(a) Using MS-Excel

state of economy...

The following table contains information on the 2002 resident population of the U.S., by age. (Source: The New York Times Almanac 2004, page 277.)

a.) If a resident of the U.S. is chosen at random, find the probability that he or she is 25 to 44 years old.

P(25 - 44) = 1270419/4486508 = 0.2832

b.) If a resident is chosen at random, find the probability that he or she is older than 24 years old.

P(> 24) = (1270419 + 1068243 + 588542)/4486508 = 0.6524

c.) In what age category does the median age fall?

The median age falls in the 25 - 44 category.

Emery, Finnerty & Stowe - Ch. 6, problems A6, B6, & B10 (a only)-

A6. (Expected portfolio return) Musumeci Capital Management has invested its portfolio as shown here. What is Musumeci’s expected portfolio return?

Solution:

Given that portfolio weight in Money Market securities = 10% = 0.1 and expected return = 4%

Portfolio weight in corporate bond = 20% = 0.2 and expected return = 8%

Portfolio weight in Equities = 70% = 0.7 and expected return = 12 %

Expected return =

Where p is probability and x investment

Then expected return = 0.1*4 + 0.2*8 + 0.7*12 = 0.4 + 1.6 + 8.4 = 10.4 %

B6. (Expected return and risk) Procter & Gamble is considering three possible capital investment projects. The projected returns depend on the future state of the economy as given here.

a. Calculate each project’s expected return, variance, and standard deviation.

b.Rank the projects on the basis of (1) expected return and (2) risk. Which project would you choose?

Since Expected return =

Where p is probability and x investment

Variance =

And Standard deviation =

(a) Using MS-Excel

state of economy...