Corporate Finance · Quiz 2 · Sep 2025

Given that the pen drawn is green, find the probability that it came from box C. Enter the answer correct to two decimal places.

According to the Expected Utility Hypothesis, if there are two possible states, 1 and 2, with probabilities

and

, and respective state-contingent consumptions are

and

, then the utility function is given by:

Global Bank has total assets of 2,500 units, liabilities of 1,500 units, and capital of 1,000 units. What is the leverage ratio for Global Bank?

On a Mean-Standard Deviation diagram (Mean on the vertical axis and Standard deviation on horizontal axis) the left boundary of the feasible set represents the:

A 1-year government bond offers a 5% rate of return. A lender, who is risk neutral, lends ₹50,000 to a friend. The lender believes the friend will pay back the promised amount with an 80% probability and will pay back nothing with a 20% probability. What is the default premium (in addition to the time premium) that the lender should ask from the friend?

There are two assets: a risk-free asset with a 4% rate of return and a risky asset with an expected rate of return of 19% and a standard deviation of 10%. What is the slope of the Capital Allocation Line (CAL) of a portfolio consisting of these two assets?

A person's utility function is

. If the person is indifferent between a risk- free asset (X) yielding 5% and a risky asset (Y) with

% and

%, what is the coefficient of risk aversion (A)?

An asset (A) has a standard deviation of 20%. The market portfolio (M) has a standard deviation of 5%. The correlation between the asset and the market is 0.2. What is the beta (

) of asset A?

A two-asset portfolio has

%,

%. To achieve a target expected return of 15%, what weight must be invested in Asset 1?

A two-asset portfolio consists of Asset X (

%) and Asset Y (

%). The correlation between the two assets is 0.5. If 60% is invested in X and 40% in Y, what is the portfolio variance (

)?

An equally weighted portfolio is formed from 25 uncorrelated assets. Each asset has a standard deviation of 25%. What is the standard deviation of the portfolio?

What is the fair price of a bet that pays 20 with 20% probability, 50 with 50% probability, and 90 with 30% probability?

A farm is worth 40 thousand under flood (20% probability) or 150 thousand in no flood situation (80% probability) next year. The farm was purchased for 100 thousand, financed by a loan of 80 thousand and equity of 20 thousand. The loan requires a promised repayment of 110 thousand. What is the expected payoff for the equity owner next year (in thousands)?

For a three-asset portfolio of uncorrelated assets,

,

,

are the weights and

is the common (same for the three assets) variance. The portfolio variance is

. To find the Global Minimum Variance (GMV) portfolio, you would minimize

subject to:

An investor with mean-variance preferences

is comparing Asset A (

,

) and Asset B (

,

). Which asset would investor prefer?

The risk-free rate of return is 6% and the expected market return is 15%. If the beta (

) of an asset is 1.2, then what is the expected return of the asset according to the Capital Asset Pricing Model (CAPM)?

An investor decides to short sell 100 shares of Tech Inc. The current share price is Rs. 300. At the end of 1 year, the share price drops to Rs. 275. How much profit does the investor make from exercising the short sale on these shares (Assuming there are no additional costs for this trade)

A new vineyard is purchased for 700 thousand units. There is a 10% chance of a severe pest infestation in the next year. If there is an infestation, the total payoff of the vineyard will be 300 thousand units in the next year. Otherwise, the vineyard generates a payoff of 900 thousand units in the next year. The appropriate cost of capital is 15% per year. The purchase is financed with a loan of 500 thousand units and the remaining amount as equity. Based on the above data, answer the given subquestions.

What would be the appropriate promised rate of return that the creditor of the loan would demand?

A new vineyard is purchased for 700 thousand units. There is a 10% chance of a severe pest infestation in the next year. If there is an infestation, the total payoff of the vineyard will be 300 thousand units in the next year. Otherwise, the vineyard generates a payoff of 900 thousand units in the next year. The appropriate cost of capital is 15% per year. The purchase is financed with a loan of 500 thousand units and the remaining amount as equity. Based on the above data, answer the given subquestions.

What is the expected payoff for the equity owner in the next year?

Anjali, an entrepreneur, has a utility function of the form

. If her new product is successful, she expects to earn 1,600 units. If it fails, she will earn 400 units. There is a 40% chance that her product will fail. Based on the above data, answer the given subquestions.

What is Anjali’s expected utility from the venture?

Anjali, an entrepreneur, has a utility function of the form

. If her new product is successful, she expects to earn 1,600 units. If it fails, she will earn 400 units. There is a 40% chance that her product will fail. Based on the above data, answer the given subquestions.

Anjali can buy an insurance policy that pays her 1,200 units if the product fails. If she pays a price

for this policy, she would be sure to have an income of

regardless of success or failure. What would be the largest price (

) that Anjali would be willing to pay for such an insurance?

Suppose there are two assets, Asset 1 and Asset 2, with the following characteristics: • Expected Rate of Return:

,

• Standard Deviation:

,

• Covariance:

Based on the above data, answer the given subquestions.

A portfolio is formed with 30% of wealth in Asset 1 and 70% of wealth in Asset 2. What would be the expected rate of return of this portfolio?

Suppose there are two assets, Asset 1 and Asset 2, with the following characteristics: • Expected Rate of Return:

,

• Standard Deviation:

,

• Covariance:

Based on the above data, answer the given subquestions.

What would be the standard deviation of the rate of return of the portfolio described in previous question?

Suppose there are two assets, Asset 1 and Asset 2, with the following characteristics: • Expected Rate of Return:

,

• Standard Deviation:

,

• Covariance:

Based on the above data, answer the given subquestions.

Suppose you would like to construct a portfolio with an expected rate of return of 19%. What weights would you put on Asset 1 and Asset 2, respectively?

Suppose there are two assets, Asset 1 and Asset 2, with the following characteristics: • Expected Rate of Return:

,

• Standard Deviation:

,

• Covariance:

Based on the above data, answer the given subquestions.

What are the weights of Asset 1 and Asset 2 in the minimum variance portfolio?

Suppose there are two assets, Asset 1 and Asset 2, with the following characteristics: • Expected Rate of Return:

,

• Standard Deviation:

,

• Covariance:

Based on the above data, answer the given subquestions.

What is the expected rate of return of the minimum variance portfolio?