A pension fund has been offered two investment opportunities. Asset A gives an annual return of 3B%, where B is a binomial random variable with parameters n = 4 and p = 0.4. Asset B gives an annual return of 4P%, where P is a Poisson random variable with parameter μ = 2. Calculate the following three measures of investment risk for each asset: (a) Variance [1] (b) Semi-variance [4] (c) Shortfall probability versus a benchmark return of 4%.[2] I can't understand the solution for this question? They seem to be using 81/625 and 216/625 to multiply but I can't imagine where those numbers came from? Could someone please explain how to solve parts b and c?
It's often the case that our ASET solutions provide the necessary explanation and detail that is sometimes missing from the Examiners' solutions. I know we're getting close to the exam now but I'd still say it's a worthwhile purchase with all the exam technique advice you'd also pick up just reading through it, John
I'll definitely do that next paper, but for now could you please explain this question? Even if it doesn't explain those numbers - how would one solve this question, please?
