Ddm Case Study
DDM CASE STUDY CHAPTER – 5 HAPPY BULLS AND WORRIED BEARS * OVERVIEW OF THE CASE * End run provides two schemes: 1. Worried bear 2. Happy Bulls * With EndRun’s Worried bear fund scheme you can earn 400% rate of return in times of recession. * With EndRun’s Happy Bulls fund scheme you can earn 12 times your initial investment in fast expanding booming economy. * COVARIANCE The covariance measures the strength of relationship between two numerical random variable X and Y. * A positive covariance indicates positive relationship.
* A negative covariance indicates negative relationship. * Expected value is sum of two random variable.E(X+Y) = E(X) + E(Y) E(X) = (0. 1)(-300)+(0. 2)(-200)+(0. 5)(100)+(0.
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2)(400) = 60 E(Y) = (0. 1)(1200)+(0. 2)(600)+(0. 5)(-100)+(0. 2)(-900) = 10 E(X+Y)= 60 + 10 = 70 * There is positive covariance between Happy bull and Worried Bears. web case 1 * ANSWER – 1 There are some catches about the claims the website make for the rate of return, which are as follows: * Happy Bulls: As per the expected value of analysis there is a probability of 0.
1 that Happy Bulls is giving a rate of return of value 1200 for the fast expanding economy. * Worried Bears: As per the expected value analysis, there is a probability of 0. that Worried Bear is giving a rate of return of Value (400) for an economy in recession. web case 2 * ANSWER – 2 There are some subjective data that influence the rate-of-return analysis of these funds: * As per the data analysis, the rate of return is sure on both the investment parties. But according to possible outcome the values pertaining to both parties differs. * If the outcome is expanding economy, a candidate is investing on Happy Bull then the probability is 0.
2 of getting rate of return of value 600, irrespective of what market condition is. * On other hand there is 0. 8 chances that the investor won’t get rate of return as per the probability set by the company, but will get as per the market condition. Could EndRun be accused of making false and misleading statement? * No, EndRun cannot be accused of making false and misleading statements because the claim they made about investment companies, there is a sure chances of getting rate of return. * If we invest in Happy Bulls, rate of return is 1200 with a probability of 0.
1 in fast expanding economy. * On the other hand, if we invest in Worried Bears, rate of return is 400 with a probability of 0. in recession period. * ANSWER – 3 Should a rational investor in Happy Bull fund or Worried Bear looking at the expected-return analysis? * According to the given statstics information, surely Worried Bear fund has a greater expected return as compared to Happy Bull fund. * Probability of rate of return of Worried Bear fund is 0. 2 in recession and probability of rate of return of Happy Bull is 0.
1 in fast expanding economy. * A Rational investor can invest based on the market situation and possible outcome in either of this company to get maximum rate of return