1. a)You decide to implement a passive strategy, targeting and initially holding 60% in stocks and 40% in bonds. If during the year stocks go up 10% and bonds go up 4%, what % of your stocks should you sell to move into bonds when rebalancing at the end of the year? % (round to 1 decimal place)

b)Alternatively, assume you initially formed the portfolio with a $1000 investment. If you were investing an additional $500 during the rebalancing period, how much would you need to put into bonds (with the remaining being put into stocks) to be in balance?

2. You discover a technical anomaly in the US stock market. You find that stocks that go up X% or more 2 days in a row have an expected alpha of X/100% the following day (for example if a stock goes up 6% and 9%, then the next day its expected alpha is 0.06%). Suppose stock A has a BID-ASK spread of 0.2%, and has gone up 10% and 15% percent in the last 2 days. What is your expected profit (in dollars) if you choose to implement your strategy and take a $1000 position in the stock for one day?

3. Llamas.com is currently at $50. I purchase a call with a strike price of $51, and I write a call with a strike price of $55. Both options expire at end of day tomorrow. a) If Llamas.com drops to $40, what is my total payoff? b) If it increases to $55, what is my total payoff?

c)If it increases to $100, what is my total payoff?