| (12) Answer the following in terms of how investor objectives and risk tolerance determine their return requirements. (a) How would the degree of an investor's risk aversion affect their investment strategy? Within each life cycle period - savers will still differ in terms of their risk aversion. More risk averse savers will have to start saving at a younger age- or save more out of lifetime earnings - or delay retirement age- to achieve the same results as someone less risk averse. (b) What is the importance of prudent investor laws? (c) Impact of regulations: (3) The following table gives bond prices. (See formulas at the end of the exam.) Principal Coupon Price Maturity Years 1.0 2.0 100 100 99 0.0 1.0% 99.5 a) Calculate zero rates with continuous compounding for the 1-year and 2-year bonds (coupon paid annually). (b) What is the 1-year forward rate from year 1 to year 2? (4) A futures market participant can deposit either cash or financial securities to me margin requirement? How might this decision be made? | (12) Answer the following in terms of how investor objectives and risk tolerance determine their return requirements. (a) How would the degree of an investor's risk aversion affect their investment strategy? Within each life cycle period - savers will still differ in terms of their risk aversion. More risk averse savers will have to start saving at a younger age- or save more out of lifetime earnings - or delay retirement age- to achieve the same results as someone less risk averse. (b) What is the importance of prudent investor laws? (c) Impact of regulations: (3) The following table gives bond prices. (See formulas at the end of the exam.) Principal Coupon Price Maturity Years 1.0 2.0 100 100 99 0.0 1.0% 99.5 a) Calculate zero rates with continuous compounding for the 1-year and 2-year bonds (coupon paid annually). (b) What is the 1-year forward rate from year 1 to year 2? (4) A futures market participant can deposit either cash or financial securities to me margin requirement? How might this decision be made