arentheses at the start of the question, and the total points for the entire assignment adds up to 100. This assignment covers Statistics as related to finance. Refer to Note on Review of Statistics before you attempt this assignment. And feel free to use the statistical functions in Excel/Spreadsheets to calculate stuff.
In accordance with the Coursera Honor Code, I (Amanda Milligan) certify that the answers here are my own work.
Question 1
(5 points) Shareholders of Exxon Oil Company face a variety of risks in holding its shares. If the economy falters, people tend to travel less and so there is less demand from the airlines industry for Exxon's fuels. This type of risk that Exxon's shareholders bear is
Specific/Idiosyncratic Risk. …show more content…

Because of this, the price of an otherwise identical government bond relative to a corporate bond will be
Higher.
Lower.
The same.
Question 8
(15 points) Suppose your client is risk-averse but can invest in only one of the three securities, X, Y, or Z, in an uncertain world characterized as follows. Next year the economy will be in an expansion, normal, or recession state with probabilities 0.40, 0.40, and 0.20, respectively. The returns (%) on the three securities in these states are as follows: Security X {expansion = +14, normal = +10, recession = +7}; Security Y {+11, +9, +8}; Security Z {+13, +8, +7.5}. Which security can you rule out, that is, you will not advise your client to invest in it?
Security Y.
Security X.
Security Z.
None of the securities.
Question 9
(15 points) You have just taken over as a fund manager at a brokerage firm. Your assistant, Thomas, is briefing you on the current portfolio and states "We have too much of our portfolio in Alpha. We should probably move some of those funds into Gamma so we can achieve better diversification." Is he right? [Hint: Feel free to use spreadsheet statistical functions.] Here is the data on all three stocks. Assume, for convenience, that all three securities do not pay dividends. Alpha, Current Price 40;