1. You have the following information for stock portfolio A and bond portfolio B. The risk-free rate is 3.0%.

ErA=11% σA=20% ErB=5.5% σB=11% ρAB=0.4

THE optimal risky portfolio, P, has weights of 71.65% in A and 28.35% in B and has a standard deviation of 15.84%. What is the expected return of the optimal complete portfolio for an investor with a risk aversion parameter of A = 2.5?

2. The risk-free rate is 3.5% and the expected return on the market is 13.0%. A stock with a beta of 1.2 has an expected return of 14.9%. The stock currently sells for $49.25 per share; analysts expect the stock to pay a dividend in one year of $3.80 and that the stock price at that time will be $51.50. What is the stock’s alpha?

3. Bond A has a duration of 3.75 and quoted price of 101.233 and bond B has a duration of 8.77 and a quoted price of 96.195. A $550,000 portfolio of these two bonds has a duration of 5.25. How much (in $) of this $550,000 portfolio is invested in bond B?

4. On 4/22/2017 a twenty-year, 3.5% Treasury bond was issued. On 1/7/2021, an investor sells $1,250,000 in par value at a quoted price of 97.875. What is the seller’s accrued interest?

Answer rating: 100% (QA)

1 To calculate the expected return of the optimal complete portfolio Rp for an investor with a risk aversion parameter A of 25 you can use the Capital ... View the full answer