***I'm writing a short paper addressing these items. Please use excel and show working formulas where applicable, feel free to elaborate or offer guidance on problems without calculations.*** Thanks!

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 presently owns a bond portfolio with $1million invested in zero coupon Treasury bonds that mature in 10 years. The client also has $2 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 one year from now. Your first task is to 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 for each scenario. The probabilities and returns are shown below:

Scenario	Probability of Scenario	Return on a 10 year Zero coupon treasury bond during the next year
Worst case	.10	-14%
Poor Case	.20	-4%
Most Likely	.40	6%
Good Case	.20	16%
Best Case	.10	26%

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. Historical Stock Returns

Year	Market	Blandy	Gourmange
1	30%	26%	47%
2	7	15	-54
3	18	-14	15
4	-22	-15	7
5	-14	2	-28
6	10	-18	40
7	26	42	17
8	-10	30	-23
9	-3	-32	-4
10	38	28	75

Market Blandy Gourmange

Average return: 8% ? 9.2%

Standard Deviation: 20.1% ? 38.6%

Correlation with the market: 1.00 ? 0.678

Beta: 1.00 ? 1.30

The risk-free rate is 4% and the market risk premium is 5%.

A.) What are the investment returns? What is the return on an investment that costs $1,000 and is sold after 1 year for $1,060?

B.) Use the scenario data to calculate the expected rate of return for the 10 year zero coupon Treasury bonds during the next year.

C.) What is stand -alone risk? Use the scenario data to calculate the standard deviation of the bonds return for the next year.

D.) (1) Should portfolio effects influence how investors think about risk of individual stocks? (2) If you decide to hold a one-stock portfolio and consequently were exposed to more risk than diversified investors , could yoiu expect to be compensated for all of your risk; that is, could you earn a risk premium on that part of your risk that you coiuld have eliminated by diversifying?

E.) According to the Capital Asset Pricing Model, what measures the amount of risk that an individual stock contributes to a well diversified portfolio? Define this measurement.

F.) What does market equilibrium mean? If equilibrium does not exist, how will it be established?

G.) What is the Eficient Markets Hypothesis (EMH) and what are its three forms? WHat evidence supports the EMH? What evidence casts doubt on the EMH?