A portfolio has 2 assets. There are 3 possible future states of the economy. The returns...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
A portfolio has 2 assets. There are 3 possible future states of the economy. The returns for each asset and the market under each state are the following: R1s: -5; 5; 18 R2s: 6; -6; 12 Rms: -4; 2; 14 The weight of asset 1 in the portfolio is 60%. The probability of occurring each of the states 1 and 2 are, respectively, 30% and 40%. Requests: 1. What is the portfolio manager anticipating for the future? 2. Describe the advantages of the CAPM relatively to the market model? 3. What is the Arbitrage Pricing Theory? A company issued a bond in 30 June of year N. You have the following information about this bond: it was issued at par (€50); it has an interest rate of 6%; it will be repaid in 30 June of N+5 and the annual coupon is paid in 30 June each year. On 2/01/N+2 an investor decided to buy this bond. Consider that the YTM for bonds with equivalent risk is 8%. Assume that each month has 30 days. Requests: 1. Calculate the theoretical value of the bond in 2/01/N+2. 2. Calculate the theoretical value of the bond in 2/01/N+2, assuming the following change regarding the repayment of the bond: the repayment is done at par, by change, half of the bonds in 30/06/N+4 and the remaining in 30/06/N+5. A portfolio has 2 assets. There are 3 possible future states of the economy. The returns for each asset and the market under each state are the following: R1s: -5; 5; 18 R2s: 6; -6; 12 Rms: -4; 2; 14 The weight of asset 1 in the portfolio is 60%. The probability of occurring each of the states 1 and 2 are, respectively, 30% and 40%. Requests: 1. What is the portfolio manager anticipating for the future? 2. Describe the advantages of the CAPM relatively to the market model? 3. What is the Arbitrage Pricing Theory? A company issued a bond in 30 June of year N. You have the following information about this bond: it was issued at par (€50); it has an interest rate of 6%; it will be repaid in 30 June of N+5 and the annual coupon is paid in 30 June each year. On 2/01/N+2 an investor decided to buy this bond. Consider that the YTM for bonds with equivalent risk is 8%. Assume that each month has 30 days. Requests: 1. Calculate the theoretical value of the bond in 2/01/N+2. 2. Calculate the theoretical value of the bond in 2/01/N+2, assuming the following change regarding the repayment of the bond: the repayment is done at par, by change, half of the bonds in 30/06/N+4 and the remaining in 30/06/N+5.
Expert Answer:
Answer rating: 100% (QA)
Answer I 1 What is the portfolio manager anticipating for the future The portfolio manager is anticipating an average return of 88 based on the expected returns of the assets in the portfolio and the ... View the full answer
Related Book For
Cost Accounting Foundations and Evolutions
ISBN: 978-1111626822
8th Edition
Authors: Michael R. Kinney, Cecily A. Raiborn
Posted Date:
Students also viewed these finance questions
-
Write a static method called "acronym" that takes as a parameter a String containing a phrase and that returns an acronym for the phrase. For example, the following call: acronym("self contained...
-
Write a static method called xo that accepts an integer size as a parameter and prints a square of size by size characters, where all characters are o except that an x pattern of x characters has...
-
Employee privacy has been called "today's most important workplace issue." What kinds of dilemmas have the new technologies created regarding employee privacy? What other kinds of problems have the...
-
The regression of the X and Y equation is Y = 48.32 -2.105X, What is the slope of the data.
-
Sketch the graphs of sin(1/x) and cos(1/x) on [0.1, 2]. Use Adaptive quadrature to approximate the following integrals to within 103. and Sin-da x 0.1 cos-dx 0.1
-
A rolled steel joist \(400 \mathrm{~mm} \times 200 \mathrm{~mm} \times 20 \mathrm{~mm}\) is freely supported on a span of \(4 \mathrm{~m}\). The flanges are strengthened by two \(250 \mathrm{~mm}...
-
Prove that the constant \(a\) in Eqs. (8.18) and (8.19) is negative for common boundary conditions. Equation 8.18 and 8.19:- dw dx2 - W = 0 (8.18)
-
The standard cost of Product B manufactured by Mateo Company includes three units of direct materials at $5.00 per unit. During June, 28,000 units of direct materials are purchased at a cost of $4.70...
-
While hiking you notice a large tree 15.0 m in front of you. 10.0 m from the ground there is a bear in the tree! For some reason you decide to throw a rock at the bear, but at the moment you throw...
-
1. a. How much did the materials cost per unit change between June and July? b. How much did the conversion cost per unit change between June and July? 2. Which is the optimal choice of material and...
-
Roxanne has always enjoyed eating and cooking Mexican food. Last year she opened a Mexican food restaurant and has developed a very successful business where she works every day. Now on her days off,...
-
Anna is running to the right, as shown in Figure Q3.19. Balls 1 and 2 are thrown toward her by friends standing on the ground. According to Anna, both balls are approaching her at the same speed....
-
A, B, and C are three similar plants under the same management who wants to merge them for better operation. The details are as under: You have to find out: (i) the capacity of the merged plant for...
-
Small Ltd. has been offered a choice to buy one out of two machines, A and B. You are required to compute: (a) Break-even point for each of the machines. (b) The level of sales at which both machines...
-
ABC Company Ltd. expects the following sales by months in units for the first six months of next year. The company has a policy of maintaining an inventory equal to budgeted sales for the following...
-
The Royal Industries Ltd. has prepared its annual sales forecast, expecting to achieve sales of 30,00,000 next year. The controller is uncertain about the pattern of sales to be expected by month and...
-
How much will a $28,000 investment today be worth in 12 years if it earns 6.5% annual compound interest? $ Round entry to 2 decimal places. The tolerance is 10.
-
Use the following data to answer the next two (2) questions: Product 1 Product 2 Product 3 Direct Material Cost $25,000 $30,000 $35,000 Direct Labor Cost $30,000 $40,000 $50,000 Direct Labor Hours...
-
Farrah Westin plans to build a concrete walkway for her home during her vacation. The following schedule shows how project time will be allocated: Hours Purchase materials ............5 Obtain rental...
-
Differentiate between the operating and financial budgets that are contained in a master budget. Why are both types needed?
-
Double K Corp. has established a 12 percent target ROI for 2010 for its Jamestown Division. The following data have been gathered for the division's operations for 2010: average total assets,...
-
Using the fourth-order Runge-Kutta method, solve Problem 11.15. Data From Problem 11.15:- Using the second-order Runge-Kutta method, solve the differential equation \(\ddot{x}+1000 x=0\) with the...
-
Using the central difference method, find the response of the two-degree-of-freedom system shown in Fig. 11.2 when \(c=2, F_{1}(t)=0, F_{2}(t)=10\). Figure 11.2:- X1(t) -x2(t) F(1) k=2 -F2(t) k = 4...
-
Using the central difference method, find the response of the system shown in Fig. 11.2 when \(F_{1}(t)=10 \sin 5 t\) and \(F_{2}(t)=0\). Figure 11.2:- X1(t) -x2(t) F(1) k=2 -F2(t) k = 4 k2=6 00000...
Study smarter with the SolutionInn App