EBK NUMERICAL METHODS FOR ENGINEERS
7th Edition
ISBN: 9780100254145
Author: Chapra
Publisher: YUZU
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Chapter 10, Problem 20P
Use iterative refinement techniques to improve
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4. Assume that a risk-free money market account is added to the market described in Q3.
The continuously compounded rate of return on the money market account is log (1.1).
(i) For each given μ, use Lagrange multipliers to determine the proportions (as a
function of μ) of wealth invested in the three assets available for the minimum
variance portfolio with expected return μ.
(ii) Determine the market portfolio in this market and calculate its Sharp ratio.
3. A market consists of two risky assets with rates of return R₁ and R2 and no risk-free
asset. From market data the following have been estimated: ER₁ = 0.25, ER2 = 0.05,
Var R₁ = 0.01, Var R2 = 0.04 and the correlation between R1 and R2 is p = -0.75.
(i) Given that an investor is targeting a total expected return of μ = 0.2. What
portfolio weights should they choose to meet this goal with minimum portfolio
variance? Correct all your calculations up to 4 decimal points.
(ii) Determine the global minimum-variance portfolio and the expected return and
variance of return of this portfolio (4 d.p.).
(iii) Sketch the minimum-variance frontier in the μ-σ² plane and indicate the efficient
frontier.
(iv) Without further calculation, explain how the minimum variance of the investor's
portfolio return will change if the two risky assets were independent.
2. A landlord is about to write a rental contract for a tenant which lasts T months. The
landlord first decides the length T > 0 (need not be an integer) of the contract, the
tenant then signs it and pays an initial handling fee of £100 before moving in. The
landlord collects the total amount of rent erT at the end of the contract at a continuously
compounded rate r> 0, but the contract stipulates that the tenant may leave before T,
in which case the landlord only collects the total rent up until the tenant's departure
time 7. Assume that 7 is exponentially distributed with rate > 0, λ‡r.
(i) Calculate the expected total payment EW the landlord will receive in terms of T.
(ii) Assume that the landlord has logarithmic utility U(w) = log(w - 100) and decides
that the rental rate r should depend on the contract length T by
r(T)
=
λ
√T
1
For each given λ, what T (as a function of X) should the landlord choose so as to
maximise their expected utility? Justify your answer.
Hint. It might be…
Chapter 10 Solutions
EBK NUMERICAL METHODS FOR ENGINEERS
Ch. 10 - 10.1 Use the rules of matrix multiplication to...Ch. 10 - 10.2 (a) Use naive Gauss elimination to decompose...Ch. 10 - 10.3 (a) Solve the following system of equations...Ch. 10 - 10.4 Solve the following system of equations using...Ch. 10 - Determine the total flops as a function of the...Ch. 10 - Use LU decomposition to determine the matrix...Ch. 10 - 10.7 Perform Crout decomposition on
Then,...Ch. 10 - The following system of equations is designed to...Ch. 10 - 10.9 Solve the following set of equations with LU...Ch. 10 - 10.10 (a) Determine the LU decomposition without...
Ch. 10 - Use the following LU decomposition to (a) compute...Ch. 10 - Determine Ae,A1,andAfor [A]=[82109131516] Scale...Ch. 10 - 10.13 Determine the Frobenius and the row-sum...Ch. 10 - 10.14 A matrix is defined as
Using the...Ch. 10 - 10.15 (a) Determine the condition number for the...Ch. 10 - 10.16 Determine the condition number based on the...Ch. 10 - Besides the Hilbert matrix, there are other...Ch. 10 - 10.18 Develop a user-friendly program for LU...Ch. 10 - Develop a user-friendly program for LU...Ch. 10 - Use iterative refinement techniques to improve...Ch. 10 - 10.21 Consider vectors:
Vector is...Ch. 10 - 10.22 Consider the following vectors:
Where is...Ch. 10 - 10.23 Let the function be defined on the interval ...Ch. 10 - 10.24 (a) Create a Hilbert matrix. This will be...Ch. 10 - Polynomial interpolation consists of determining...
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