please answer questions 8-1 to 8-3

8-1 8-2 Suppose you owned a portfolio consisting of $250,000 of long-term U.S. government bonds. a. Would your portfolio be riskless? Explain. b. Now suppose the portfolio consists of $250,000 of 30-day Treasury bills. Every 30 days your bills mature, and you will reinvest the principal ($250,000) in a new batch of bills. You plan to live on the investment income from your portfolio, and you want to maintain a constant standard of living. Is the T-bill portfolio truly riskless? Explain. c. What is the least risky security you can think of? Explain. The probability distribution of a less risky expected return is more peaked than that of a riskier return. What shape would the probability distribution be for (a) completely certain returns and (b) completely uncertain returns? A life insurance policy is a financial asset, with the premiums paid representing the investment's cost. a. How would you calculate the expected return on a 1-year life insurance policy? b. Suppose the owner of a life insurance policy has no other financial assets--the person's only other asset is "human capital," or earnings capacity. What is the correlation coefficient between the return on the insurance policy and the return on the human capital? Life insurance companies must pay administrative costs and sales representatives' commissions; Igence, the expected rate of return on insurance premiums is generally low or even negative. Use portfolio concepts to explain why people buy life insurance in spite of low expected returns. 8-3