There are two questions both are seperate.

1.

A client wants to make a year end charitable donation of $10,000 from her portfolio of stocks and bonds which is worth $400,000 on June 30, but she wants to be able to make the donation without invading the current principle of $400,000.You estimate from her current allocations that the mean expected return on her portfolio over six months will be 15.7% with a standard deviation of 14.5%.You consider two possible reallocations.The more aggressive reallocation would have an expected return of 19.8% with a standard deviation of 19.8%, while the more conservative reallocation would have an expected return of 12.6% with a standard deviation of 10.3%.

a.Given her desire to make the donation without invading her $400,000 principle, what is the shortfall level to use for the safety-first rule?

b.According to the safety-first criterion, should you recommend the more aggressive reallocation, the more conservative reallocation, or the current allocation?

c.For the portfolio that is optimal according to the safety-first criterion, what is the probability that the return will be less than the shortfall level?

2

1.A portfolio has an expected monthly return of 3% with a standard deviation of 6%.

a.What is the probability that this portfolio will have a negative return in one month?

b.What is the probability that this portfolio will have a return greater than 10% in a month?

c.Over one year, what is the probability that the average of the monthly returns for this portfolio will be negative?