Assume all bonds pay semi-annual coupons unless otherwise instructed. Assume all bonds have par values per contract of $1,000.

Initial margins on equity are 50% with a 40% maintenance margin. Initial margins on short sales are 150% (50%) with a 130% (30%) maintenance margin.

Futures contract information:

Soybeans: price quote (e.g., 1184) is cents/bushel; contract size 5,000 bushels; margin is $4,725/contract

Crude oil: price quote (e.g., 98.65) is dollars/barrel; contract size 1,000 barrels; margin is $9,000/contract

Gold: price quote (e.g., 1,955.50) is dollars/ounce; contract size 100 ounces

E-mini S&P 500 Index: price quote is in index value (e.g., 4,145.50); contract size is a $50 multiple of the price quote; margin is 12,650

1. You have two stock portfolios with betas of 1.10 (portfolio X) and 1.50 (portfolio Y). Additionally, you know that portfolio X (portfolio Y) has had an average return over the past 20 years of 10.47% (15.84%) and a standard deviation of 29.51% (41.78%). The market risk premium is 7.4% and the risk-free rate is 3.4%.
   1. What is the expected return on portfolio Y?
   2. What is the Sharpe ratio of portfolio X?
   3. The Sharpe ratio for a portfolio Z is higher than the Sharpe ratio for portfolio X. Why does this suggest that investors prefer portfolio Z to portfolio X?
   4. If you wanted a portfolio that is a combination of portfolios X and Y to have an expected return of 13.50%, what would be the portfolio weights?