Reference no: EM132568248
Questions -
Q1. Price each bond and explain how the number of years maturity and the coupon rate affect the current price of the bonds. Assume a YTM of 7%.
1. A 4- year bond with 9% annual coupon.
2. A 4-year bond with a zero coupon.
3. A 15-year bond with a 9% annual coupon.
4. A 15-year bond with a zero coupon.
Q2 Using the following information to answer questions below:
State Probability Return on A Return on B
Boom .25 15% -3%
Normal .65 10% 4%
Bust .10 4% 9%
1. Calculate the expected returns for A and B.
2. Calculate the standard deviations for A and B.
3. Calculate the covariance of the two companies.
4. What is the expected return on a portfolio with weights of 40% in asset A and 60% in asset B?
5. What is the standard deviation of a portfolio with weights of 40% in security A and the remainder in security B?
6. What is the correlation coefficient of the two securities?
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