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Ollscoil na hÉireann, Gaillimh
GX_____
National University of Ireland, Galway
Semester 1 Examinations 2010/
Exam Code(s) 1MIF Exam(s) M.Econ.Sc. (International Finance) Module Code(s) EC Module(s) Seminar in Financial Economics I Paper No. 1 Repeat Paper External Examiner(s) Professor Cillian Ryan Internal Examiner(s) Professor John McHale Dr. Srinivas Raghavendra
Instructions:
SECTION A : Answer all questions in Section A. Each question carries 5 marks. SECTION B : Answer any four in Section B. Each question carries 20 marks.
Duration 3 hours
No. of Pages 1+ Department(s) Economics Course Co-ordinator(s) Dr. Srinivas Raghavendra Requirements : MCQ Handout Statistical Tables Graph Paper Log Graph Paper Other Material
EC565: Economics of Financial Market Maximum Duration: 3 hours Max Marks: 100 Section A
- Assume that security returns are normally distributed. Compare portfolios A and B using both first- and second – order dominance:
- An individual with a logarithmic utility function and a level of wealth of € 20, is exposed to the following risk: G(-1000, - 10,000:0.8). Use both Markowitz’s measure and Pratt-Arrow measure to calculate the risk premium required by the individual faced with the above risk?
- What is the efficient set in the mean – variance frontier of two not so perfectly correlated assets?
- Show how CAPM can be used in measuring the value of an asset that has a risky payoff at the end of some future period (for example, consider a one-period model). Section B 5 (a) Assume the rate of return of the risk free asset as. Consider a portfolio consists of a per cent invested in risky asset (I) and (1-a) per cent in the market portfolio. Derive the slope of the risk-return trade-off evaluated at the point of market equilibrium and show that the required rate of return on the risky asset is equal to the risk-free rate of return plus a risk premium. [10]
Discuss the mechanisms by which the impact of Ireland’s banking crisis has been observed in the market for Irish sovereign debt. [20]
