A portfolio has 2 assets. There are 3 possible future states of the economy. The returns...
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A portfolio has 2 assets. There are 3 possible future states of the economy. The returns for each asset and the market under each state are the following: R1s: -5; 5; 18 R2s: 6; -6; 12 Rms: -4; 2; 14 The weight of asset 1 in the portfolio is 60%. The probability of occurring each of the states 1 and 2 are, respectively, 30% and 40%. Requests: 1. What is the portfolio manager anticipating for the future? 2. Describe the advantages of the CAPM relatively to the market model? 3. What is the Arbitrage Pricing Theory? A company issued a bond in 30 June of year N. You have the following information about this bond: it was issued at par (€50); it has an interest rate of 6%; it will be repaid in 30 June of N+5 and the annual coupon is paid in 30 June each year. On 2/01/N+2 an investor decided to buy this bond. Consider that the YTM for bonds with equivalent risk is 8%. Assume that each month has 30 days. Requests: 1. Calculate the theoretical value of the bond in 2/01/N+2. 2. Calculate the theoretical value of the bond in 2/01/N+2, assuming the following change regarding the repayment of the bond: the repayment is done at par, by change, half of the bonds in 30/06/N+4 and the remaining in 30/06/N+5. A portfolio has 2 assets. There are 3 possible future states of the economy. The returns for each asset and the market under each state are the following: R1s: -5; 5; 18 R2s: 6; -6; 12 Rms: -4; 2; 14 The weight of asset 1 in the portfolio is 60%. The probability of occurring each of the states 1 and 2 are, respectively, 30% and 40%. Requests: 1. What is the portfolio manager anticipating for the future? 2. Describe the advantages of the CAPM relatively to the market model? 3. What is the Arbitrage Pricing Theory? A company issued a bond in 30 June of year N. You have the following information about this bond: it was issued at par (€50); it has an interest rate of 6%; it will be repaid in 30 June of N+5 and the annual coupon is paid in 30 June each year. On 2/01/N+2 an investor decided to buy this bond. Consider that the YTM for bonds with equivalent risk is 8%. Assume that each month has 30 days. Requests: 1. Calculate the theoretical value of the bond in 2/01/N+2. 2. Calculate the theoretical value of the bond in 2/01/N+2, assuming the following change regarding the repayment of the bond: the repayment is done at par, by change, half of the bonds in 30/06/N+4 and the remaining in 30/06/N+5.
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Answer I 1 What is the portfolio manager anticipating for the future The portfolio manager is anticipating an average return of 88 based on the expected returns of the assets in the portfolio and the ... View the full answer
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Cost Accounting Foundations and Evolutions
ISBN: 978-1111626822
8th Edition
Authors: Michael R. Kinney, Cecily A. Raiborn
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