Angelas portfolio holds security A, which returned 12.0%, security B, which returned

15.0% and security C, which returned -5.0%. At the beginning of the year 45% was invested in security A, 25.0% in security B and the remaining 30% was invested in security C. The correlation between AB is 0.75, between AC 0.35, and between BC -0.5. Securities A's standard deviation is 12%, security B's standard deviations is 15% and security C's is 10%.

Required: Calculate the:

a) Expected return and Portfolio variance of Angela's Portfolio

b) Portfolio Standard deviation of risk. What happens to the portfolio risk if market conditions reduce the risk of security B by 50%?

c) Explain what happens to a portfolio's overall risk when securities that are

uncorrelated are combined.

d) List four steps that go into selecting an optimal portfolio of risky assets.

e) A five-year bond pays interest annually. The par value is GHc 1000 and the coupon rate equals seven (7) percent. If the market's required return on the bond is eight (8) percent, at what market price does this sell for?

Literature argues that bond prices are inversely related to interest rates leading to different types of bonds issue. Briefly define Par Bonds, Premium Bonds and Discount Bonds.

f) Cal Bank has a corporate bond that matures in two years but makes semi-annual interest payments. The par value is GHc 1000, the coupon rate equals four (4) percent and the bond's market price is GHc 1019.27. Determine the bonds yield to maturity