Peter has the following assets in his portfolio: - \$200,000 worth of United States Treasury bonds, which are considered risk-free; - \$150,000 worth of Company X's corporate bonds; - 6,000 shares of Company Y's stock. The following information is available: - The risk-free rate is 4% per annum. - The market portfolio has a mean return of 7% per annum. - Company X's corporate bonds have a yield-to-maturity of 6%. The company has a 2% probability to default on its debt obligation in the coming year; if this happens, bondholders are only expected to get back 20% of their investment at the end of the year (and no coupons are paid). - Company Y's stock has a beta of 1.4. It pays dividends every quarter, with the next one due three months from now. Analysts expect that Company Y will pay $0.5 quarterly dividends per share in the coming year, and the stock will be worth $16 ex-dividend per share one year from now. (a) Based on the dividend discount model, calculate the current value of Peter's stock on Company Y. [4 marks] (b) Calculate the expected rate of return for Peter's portfolio. [4 marks] (c) Suppose Company Y's stocks are selling for $18 per share in the market. Another analyst believes that Company Y's stock return has a standard deviation of 0.18. Assume that the performance of Company X is independent of the performance of Company Y. Calculate the standard deviation of the rate of return for Peter's portfolio. [Hint: What is the variance of the rate of return for Company X's corporate bonds?] [6 marks] [Total: 14 marks]