Question 1 A portfolio has 2 assets. There are 3 possible future states of the economy. The returns for each asset and the market under each state are the following: R15: -5; 5; 18 R2s: 6; -6; 12 Rms: -4; 2; 14 The weight of asset 1 in the portfolio is 60%. The probability of occurring each of the states 1 and 2 are, respectively, 30% and 40%. Requests: 1. What is the portfolio manager anticipating for the future? 2. Describe the advantages of the CAPM relatively to the market model? 3. What is the Arbitrage Pricing Theory? Question II A company issued a bond in 30 June of year N. You have the following information about this bond: it was issued at par (50); it has an interest rate of 6%; it will be repaid in 30 June of N+5 and the annual coupon is paid in 30 June each year. On 2/01/N+2 an investor decided to buy this bond. Consider that the YTM for bonds with equivalent risk is 8%. Assume that each month has 30 days. Requests: 1. Calculate the theoretical value of the bond in 2/01/N+2. 2. Calculate the theoretical value of the bond in 2/01/N+2, assuming the following change regarding the repayment of the bond: the repayment is done at par, by change, half of the bonds in 30/06/N+4 and the remaining in 30/06/N+5