Ddm Case Study

Topics: Investment, Probability theory, Variance Pages: 3 (533 words) Published: February 9, 2012
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)+(0.2)(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 0.2 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...
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