Assume that you recently graduated and landed a job as a financial planner with Cicero Services, an investment advisory company. Your first client recently inherited some assets and has asked you to evaluate them. The client owns a bond portfolio with $2 million invested in zero coupon Treasury bonds that mature in 10 years. The client also has $3 million invested in the stock of Blandy, Inc., a company that produces meat-and-potatoes frozen dinners. Blandys slogan is Solid food for shaky times. Unfortunately, Congress and the president are engaged in an acrimonious dispute over the budget and the debt ceiling. The outcome of the dispute, which will not be resolved until the end of the year, will have a big impact on interest rates 1 year from now. Assume that you recently graduated and landed a job as a financial planner with Cicero Services, an investment advisory company. Your first client recently inherited some assets and has asked you to evaluate them. The client owns a bond portfolio with $2 million invested in zero coupon Treasury bonds that mature in 10 years. The client also has $3 million invested in the stock of Blandy, Inc., a company that produces meat-and-potatoes frozen dinners. Blandys slogan is Solid food for shaky times. Unfortunately, Congress and the president are engaged in an acrimonious dispute over the budget and the debt ceiling. The outcome of the dispute, which will not be resolved until the end of the year, will have a big impact on interest rates 1 year from now. Assume that you recently graduated and landed a job as a financial planner with Cicero Services, an investment advisory company. Your first client recently inherited some assets and has asked you to evaluate them. The client owns a bond portfolio with $2 million invested in zero coupon Treasury bonds that mature in 10 years. The client also has $3 million invested in the stock of Blandy, Inc., a company that produces meat-and-potatoes frozen dinners. Blandys slogan is Solid food for shaky times. Unfortunately, Congress and the president are engaged in an acrimonious dispute over the budget and the debt ceiling. The outcome of the dispute, which will not be resolved until the end of the year, will have a big impact on interest rates 1 year from now.

You are asked o determine the risk of the clients bond portfolio. After consulting with the economists at your firm, you have specified five possible scenarios for the resolution of the dispute at the end of the year. For each scenario, you have estimated the probability of the scenario occurring and the impact on interest rates and bond prices if the scenario occurs. Given this information, you have calculated the rate of return on 10-year zero coupon Treasury bonds for each scenario. The probabilities and returns are shown here:

Task 1: Use the scenario data to calculate the expected rate of return and corresponding standard deviation for the 10-year zero coupon bonds during the next year.

You have also gathered historical returns for the past 10 years for Blandy, Gourmange Corporation (a producer of gourmet specialty foods), and the stock market. Your client has decided that the risk of the bond portfolio is acceptable and wishes to leave it as it is.

Task 2: Now your client has asked you to use historical returns to estimate the different values as indicated below.

Your client would like to reduce the level of risk. You suggest that the client sell 25% of the Blandy stock and create a portfolio with 75% Blandy stock and 25% in the high-risk Gourmange stock.

Task 3: Show the client what the proposed portfolio return would have been in each year of the sample. Then calculate the average return and standard deviation using the portfolios annual returns.

Task 4: Given that the risk-free rate is 5% and the market risk premium is 5.5%, find out the required returns of market, Blandy, Gourmange, and the portfolio.

Task 5: Your client decides to invest $1.5 million in Blandy stock and $0.75 million in Gourmange stock. What are the weights for this portfolio? What is the portfolios beta? What is the required return for this portfolio?

Task 6: Jordan and Casey are portfolio managers at your firm. Each manages a well-diversified portfolio. Your boss has asked for your opinion regarding their performance in the past year. Jordans portfolio has a beta of 0.9 and had a return of 8.0%; Caseys portfolio has a beta of 1.5 and had a return of 10.5%. Which manager had better performance? Why?

Task 7: If the Zero Coupon Bond here has a par value of $1,000 and the current price is $ 900, what will be the yield to maturity (YTM)? Please show the calculation via cell reference and formula/function.

Task 8: Had the required rate of return on the Zero Coupon Bond been -0.25%, while the par value is $1,000, please find out the present value of the bond. Also, if the current price is $ 900, is it a discount bond or, a premum bond? Please show the calculation via cell reference and formula/function.