ASSIGNMENT 1

1. What is the difference between systematic risk and unsystematic risk? Which
can lead to the bankruptcy of a corporation? Give examples.

2. Arbitrage pricing theory is an extension of the capital asset pricing model.

Explain this statement.

3. What is the difference between covariance and variance?

4. What is the benefit by calculating the covariance for making your own
portfolio? Make example for 2 investments with the covariance that suitable
with the portfolio concept.

5. Two stocks, X and Y, have the following characteristics:

E(X) = $50
E(Y) = $100
2x= 9,000
2y= 15,000
xy= 7,500
If the weight of portfolio assets assigned to investment X is 0.4, compute the:
a. Portfolio expected return.
b. Portfolio risk.
c. Would you invest in stock X or stock Y? Explain.

6. The list of the calories and sugar, in grams, in one serving of seven breakfast
cereals:

Cereal Calories Sugar

Kellogs All Bran 80 6
Kellogs Corn Flakes 100 2
Wheaties 100 4
Natures Path Organic 110 4
Multigrain Flakes
Kellogs Rice Krispies 130 4
Post Shredded Wheat 190 11
Vanilla Almond
Kellogs Mini Wheats 200 10
 a. Compute the covariance.
b. Compute the coefficient of correlation.
c. Which do you think is more valuable in expressing the relationship
between calories and sugar-the covariance or the coefficient of
correlation? Explain.
d. Based on (a) and (b), what conclusions can you reach about the
relationship between calories and sugar?

7. When a high risk decision works out badly, there can be disastrous
bankruptcy cost. Give an example in practice and explain what kind of risks
that company took. Explain what is banckruptcy cost and why it does matter.

Instructions:
a. Answer this question in groups with word & ppt format.
b. Choose your own team leader whos responsible to the assignments
submission and the excellence of the content of the assignments and the
presentation (slides and the ability of presenting the assignments) in class.
c. Submit this assignment via email by only the team leader group to:
ika.pratiwi@president.ac.id
d. Subject email: ex: Group 1 Assignment 1; Group 2 Assignment 1; etc.
e. Submit deadline: Day minus 1 (one) before the class begin at 6.00 pm.
f. For the presenter, you have to make hard copy. Dont forget bring your flash
disk for your presentation in ppt.
g. The maximum time of presentation and Q&A for each group: 30 minutes.

Thank you and good luck!