The client presently owns a bond portfolio with $$1$ million invested in zero coupon Treasury bonds that mature in $10$ years. The client also has $$2$ million invested in the stock of Deli, Inc., a company that produces meat$-$and$-$potatoes frozen dinners.

You have also gathered historical returns for the past $10$ years for $$Deli$$ Gourmange Corporation $($a producer of gourmet specialty foods$),$ and the stock market.

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

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

Scenario data return on a $10$ year zero coupon Treasury Bond

Worst Case $0\mathrm{.}1014\%$

Poor Case $0\mathrm{.}204\%$

Most Likely $0\mathrm{.}406\%$

Good Case $0\mathrm{.}2016\%$

Best Case $0\mathrm{.}1026\%1\mathrm{.}00$

$2.$ Use the scenario data to calculate the expected rate of return for the $10-$year zero coupon Treasury bonds during the next year.

$3.$ What is stand$-$alone risk?

$4.$ Use the scenario data to calculate the standard deviation of the bond's return for the next year

$5.$ What is the Security Market Line?

$6.$ How is beta related to a stock's required rate of return?