Question

13. Sam purchased a 10 year par annual bond with a coupon rate of 4%. One year later, YTM drops by 1%. What's Sam's holding period return? 1) 7.8% 2) 11.8% 3) 3% 4) 5% 14. You invest $100 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 12% and a standard deviation of 10% and a treasury bill with a rate of return of 5%. You want the portfolio's standard deviation to be at most 8%. What's the maximum expected return of the portfolio? 1) 5% 2) 8.5% 3) 10.6% 4) 12%

Answer 1

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1 e 9 ve x W ENG 2202 13 01 2020 20 A B C D E F G H JK L M N O P 13 ANNUAL COUPON BOND ISSUED AT PAR, SO YTM = COUPON RATE = 4% PO = 1000 NOW AFTER A YEAR, YTM = 3% set C/Y = 1 P/Y then C1 N = 1/Y = PMT= FV = PV = -40 (1000 X 4%] -1000 1077.86 (P1] CPT HOLDING PERIOD RETURN = ANSWER: 2: HOLDING PERIOD RETURN = [(P1 + C1 - PO)/PO] 11.8% (1077.86 + 40-1000/1000 ... BOND PV FV Sheel choice EARWACC Sheet1 Sheet2 Sheet Sheels HERO WACC AFN manual QUE BOND MISC +

2203 1 e Q 9 VE. ENG 13 01 2000 20 FX V for x LO LP LO LR LS LT LV LV LW LX LY Li- L0305 - LN 305 306 307 308 309 310 311 312 E(r) = rf = 12% 5% 10% 6- 313 314 315 316 STANDARD DEVIATION OF PORTFOLIO IS DEFINED AS STANDARD DEVIATION = INVESTMENT PROPORTION X SD OF PORTFOLIO = y*6 317 8% = y* 10% y = 0.8 y = 80.00% 318 319 320 321 INVESTMENT IN RISKY FUND EXPECTED RETURN = rf + (E(r ) - rf)*(y) ANSWER: 3: EXPECTED RETURN = 5% + (12%-5%)*(0.80) = 10.60% 323 324 325 326 327 328 329 330 331 332 222 KE CAPM UTILITY, SHARPE, beta convexily DGM bela por lulure INDEX INTL CAP BUD SANDRINE LEASING PV, FV, ANNUITY DIR right clean YIELD bond portfolio WACC ... FID