5. Consider the returns on a well-diversified U.S. equity portfolio (such as the S&P portfolio). Then consider the rate of return of a U.S. Treasury Bills portfolio both observed for 100 years. a) What is the difference in the yield for the equity portfolio over the Treasury bill portfolio? Search the internet for these numbers. This is the so-called equity premium. b) Why would anyone be interested in investing in Treasury bills if the equity premium is so high? 6. Consider agency problems. Design 5 mechanisms that can reduce or eliminate the principal-agent problem. 1. There are two companies: Hamid Inc., and Hamdan Inc. Demand for each Company's product and sales depend on whether the economy is strong, normal or weak. Probabilities of each state and the sales growth are gioven below. state Probability ) Hamdan Inc., Sales Hamid Inc., Sales growth (%) Cinth ) Strong 30 Normal 40 weak 30 a). Calculate expected mean sales growth for Hamid Inc., and Hamdan Inc., sales growth and interpret. b). Calculate the variance and standard deviation of Hamid Inc., and Hamdan Inc., sales growth and interpret. c). Calculate the covariance between Hamid Inc., and Hamdan Inc., sales growth and interpret. 2. a) What is the expected return on a bond if the return is 9% with a probability of 0.67 and the return is 3% with a probability of 0.33? What is the standard deviation of the returns on this bond? b) Would risk averse people prefer this bond or one with an identical expected return and a standard deviation of 4.5? Why? 3. Sami Products is a start-up computer software development firm. It currently owns computer equipment worth $30,000 and has cash on hand of $20,000 contributed by Sami's owners. For each of the following transactions, identify the real and/or financial assets that trade hands. Are any financial assets created or destroyed in the transaction? a. Sami takes out a bank loan. It receives $50,000 in cash and signs a note promising to pay back the loan over three years. b. Sami uses the cash from the bank plus $20,000 of its own funds to finance the development of new financial pSaming software. c. Sami sells the software product to Microsoft, which will market it to the public under the Microsoft name. Sami accepts payment in the form of 2,500 shares of Microsoft stock d. Sami sells the shares of stock for $50 per share and uses part of the proceeds to pay off the bank loan. 4. Reconsider Sami Products from Problem 3. a. Prepare its balance sheet just after it gets the bank loan. What is the ratio of real assets to total assets? b. Prepare the balance sheet after Sami spends the $70,000 to develop its software product. What is the ratio of real assets to total assets? c. Prepare the balance sheet after Sami accepts the payment of shares from Microsoft. What is the ratio of real assets to total assets