The correct answer is: C)

Let \(w_A\) be the weight of stock A and so \(1 – w_A\) is the weight of stock B

Then, the expected return of the portfolio is:
$$
E_p=w_A E_A+w_B E_B $$
Where \(w_B=1-w_A\)

So,
$$ \begin{align*}
0.12 & =w_A E_A+(1-w_A)E_B \\
0.12 & =w_A (0.10)+(1-w_A )(0.15)=0.15-0.05W_A \\
\Rightarrow w_A & =0.6 \\ \end{align*} $$
We need :
$$ \begin{align*}
Var[0.6 R_A+0.4R_B]
& =0.6^2 Var[R_A ]+0.4^2 Var[R_B ]2(0.6)(0.4)Cov(R_A,R_B ) \\
& =0.6^2 \times 0.18^2,+0.4^2 \times 0.20^2+2(0.6)(0.4)(0.25)(0.18)(0.20) \\
& =0.022384 \\ \end{align*} $$
The volatility is equivalent to the standard deviation. So, the volatility is :
\(
=\sqrt {0.022384}=0.1496=14.96\% \)

The correct answer is: A)

The Sharpe ratio is given by:
$$ \begin{align*}
Sharpe \quad Measure & =\cfrac {R_p-R_f}{\sigma} \\
& = \cfrac {0.15-0.05}{0.25}=0.4 \\
Treynor \quad Measure & =\cfrac {R_p-R_f}{ \beta} \\
\end{align*} $$
But,
$$ \begin{align*}
\beta & =\cfrac {\sigma_p}{\sigma_m} =\cfrac {0.25}{0.5}=0.5 \\
∴ Treynor \quad Measure & =\cfrac {0.15-0.05}{0.5}=0.20 \\
\end{align*} $$
So, the ratio is:
$$ 0.4:0.2=2:1 $$

The correct answer is: B)

We have to determine which of these are NOT systematic trading biases and are, therefore, LESS likely to cause stock prices to deviate from their fundamental values.

Familiarity bias is where the investors buy the stocks which are quite familiar to them. For instance, buying the stocks on their country or from the companies that they are accustomed to. This will not cause many effects on the price of the securities.

Over confidence bias results from uninformed individuals over estimating the accuracy of their knowledge.

The correct answer is: B)

The expected shortfall for continuously distributed returns is given by:
$$ \int _{ -\infty }^{ B }{ \left( B-x \right) } f\left( x \right) dx=\int _{ 0.1 }^{ 0.12 }{ \left( 0.12-x \right) } 10dx=0.002=0.2\% $$

The correct answer is: B)

To calculate the cost of equity, we need to first calculate the growth rate:
$$ g=\left( 1-Dividend\quad payout\quad ratio \right) \times ROE $$
Now, we can calculate the return on equity:
$$ \begin{align*}
g & =\left( 1-0.40 \right) \times 0.10=0.06 \\
{ r }_{ e } & =\frac { { D }_{ 1 } }{ { P }_{ 0 } } +g=\frac { 8.0 }{ 80 } +0.06=0.16\quad or\quad 16\% \\
\end{align*} $$

The correct answer is: C)

The forward price of the contract on 1 April is:
$$ 50{ e }^{ -0.06\times \frac { 2 }{ 12 } }\times { 1.04 }^{ \frac { 5 }{ 12 } }\times 100=4982.71 $$
So, the value of the contract on 1 June is:
$$ 4982.71-9913.79=-4931.08 $$
So, the value on 1 April is:
$$ -4931.08\times { 1.04 }^{ -\frac { 2 }{ 12 } }=-4898.95 $$

The correct answer is: B)

From the information given,

\(S_0=70,K=90,r=0.05,\sigma=0.35\) and \(T=0.5 \)

So,
$$ \begin{align*}
d_1 & =\cfrac {\text {ln} \frac {S_0}{K}+\left[r-q+ \left(\frac {s^2}{2}\right) \right]T}{\sigma \sqrt {T}}=\cfrac {ln \frac {70}{75}+\left[0.05-0+ \left(\frac {0.35^2}{2} \right) \right]0.5}{0.35 \sqrt {0.5}}=-0.05401 \\
d_2 &=-0.05401-0.35 \sqrt {0.5}=-0.30150 \\
p_0 & =Ke^{-rT} \times N(-d_2 )-S_0 e^{-qT} \times N(-d_1) \\
& =75e^{-0.05 \times 0.5} \times N(0.05)-70 \times N(0.30)=90e^{-0.05 \times 0.5} \times 0.5199-70 \times 0.617 \\
& =2.3827 \\
\end{align*} $$

The correct answer is: B)

This question is a bit treacherous. We need to use delta-gamma approximation. We know that:
$$ \left( { S }_{ t+h } \right) =C\left( { S }_{ t } \right) +\epsilon \Delta \left( { S }_{ t } \right) +\frac { 1 }{ 2 } { \epsilon }^{ 2 }\Gamma \left( { S }_{ t } \right) $$
We need to find \(\epsilon \). Using the information given, we have:
$$ \begin{align*}
250&=200+\epsilon 0.60+\frac { 1 }{ 2 } { \epsilon }^{ 2 }\times 0.004\\ &=0.002{ \epsilon }^{ 2 }+0.60\epsilon -50=0\\
\end{align*}$$
Using the quadratic formula:
$$ \epsilon =\frac { -b\pm \sqrt { { b }^{ 2 }-4ac } }{ 2a } $$
Where \(a=0.002,b=0.60,c=-50\)
$$ \epsilon =\frac { -0.60\pm \sqrt { { 0.60 }^{ 2 }-4\times 0.002\times -50 } }{ 2\times 0.002 } =-367.95,67.94 $$
The positive answer is relevant, so we go with 67.94.

So,
$$ X=1500-67.94=1432.06 $$