Portfolio Ahas $65 million in stock and $45 million in bonds. Portfolio B has $40 million in
Question:
Portfolio Ahas $65 million in stock and $45 million in bonds. Portfolio B has $40 million in stock and $70 million in bonds. Portfolio manager A makes a swap with portfolio manager B to exchange stock for bonds with a notional principal of $25 million. Year end returns are as follows: Stock Return 4% and Bond Return 6%
A. Show the asset allocation for each portfolio before the swap.
B. Show the asset allocation for each portfolio after the swap.
C. Show the year-end results without the swap for portfolio A and portfolio B. i.e. Portfolio A returns and Portfolio B returns.
D. Show the year-end results for portfolio A and portfolio B with the swap. i.e. Portfolio A returns and Portfolio B returns.
E. Does portfolio manager A gain or lose from this swap and show the dollar amount here. Show the same results for the year-end values for portfolio B.
Expert Answer:
Portfolio Swap Analysis A Asset Allocation Before Swap Portfolio A Stock 65 million 65 million 45 million 100 5909 Bonds 45 million 65 million 45 mill... View the full answer
