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Page 1 UNSW Sydney
CVEN9710 – Management of Risk
Term 3 2019 Examinations
Instructions:
1. TIME ALLOWED – 2 hours 2. READING TIME – 10 minutes 3. THIS EXAMINATION PAPER HAS 12 PAGES (NOW 8 PAGES, SINCE QUESTIONS 1-20 WERE REMOVED) 4. TOTAL NUMBER OF QUESTIONS – 27 5. TOTAL MARKS AVAILABLE – 100 6. MARKS AVAILABLE FOR EACH QUESTION ARE SHOWN IN THE EXAMINATION PAPER 8. THIS PAPER MAY NOT BE RETAINED BY CANDIDATE 9. CANDIDATES MAY BRING TO THE EXAMINATION: UNSW approved calculators, drawing instruments or rulers 10. CANDIDATES WILL BE PROVIDED: A generalised answer sheet and formula sheet 11. ALL ANSWERS MUST BE WRITTEN IN INK. EXCEPT WHERE THEY ARE EXPRESSLY REQUIRED, PENCILS MAY BE USED ONLY FOR DRAWING, SKETCHING OR GRAPHICAL WORK 11. Answer questions 1-20 on the additional answer sheet provided. Answer questions 21-27 in the spaces provided on this paper. If you need additional space use the back page of the question paper and indicate clearly on the original question page or the back page will not be marked. Question 1:
(1 Mark)
Questions 1 – 25 were multiple choice questions, with one correct answer each.
Each of these questions was worth 1 mark and questions were selected from all parts of the course. A generalised answer sheet (fill in the circles) was provided for answering these questions. These questions are not provided.
Page 2 Question 21:
(2 Marks)
The diagram below shows the efficient frontier for all investments in a particular security universe when risk free investments are unavailable. The government then issues a new security that has a risk free rate of 2%. Determine the return on the market portfolio after the introduction of this new risk free security. Show your working below. Question 22:
(2 Marks)
A certain country has a risk free rate of 2% and a market portfolio return of 6%. Penny decides to invest 30% of her money at the risk free rate and the other 70% in the market portfolio. Of the risk that Penny has on her investments what is the percentage that is systematic risk and what is the percentage that is unsystematic risk? Working space: Percentage that is Systematic Risk:
Percentage that is Unsystematic Risk:
Question 23:
(6 Marks)
What are the three major types of risk involved with securities? Explain each type. First type: _________________________________________________________________________ Second type: _______________________________________________________________________ Third type: ________________________________________________________________________ 6% 4%
2%
0%
8%
Return on market portfolio:
Efficient frontier
Page 3 Question 24:
(10 Marks)
A farmer decides to use part of his farm for growing grapes and olives. Since these involve long lived plants the farmer wants to carefully choose how much of each type of plant to grow. Investigation reveals that the average returns for the two types of crop over many years are the same per hectare for both crops on his soil type, but that two markets have different patterns of fluctuation. The return for grapes is expected to have a standard deviation of 0.8, while the return for olives is expected to have a standard deviation of 0.4. Also, the correlation between the returns for the two types of crop at different times is 0.6. (a)
Determine the relative proportions of land that should be devoted to each type of crop to minimise the fluctuation in the farmer’s return from year to year. Percentage devoted to grapes:
Percentage devoted to olives:
(b)
Determine the standard deviation for the return of the total crop if these proportions are adopted Standard deviation of total crop return:
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Ingredient X
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Product D in Plant Warehouse
Warehouse Projected
available balance: 85 Units
Safety stock quantity: 5
units Lead time: 2 weeks
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Units Schedule receipt in week 1:
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units
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Lead time: 1 week
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В.3
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Medium
High
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