gb550 unit 3 assignment and discussion

| March 14, 2016

Discussion 1

Discuss the relationship between the price of a bond and interest rates. Why does the price of a bond change over its lifetime? Please offer a quantitative example to demonstrate this relationship.

Discussion 2

In the real world, is it possible to construct a portfolio of stocks that has an expected return equal to the risk-free rate? Provide examples.

Assignment

5-2) Wilson Wonder’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 per value, and the coupon interest rate is 10%. The bonds sale at a price of $850. What is their yield to maturity?

6-7) Suppose rRF= 5%, rM= 10%, and rA= 12%

a) Calculate Stock A’s beta

b) If stock A’s beta were 2.0, then what would be A’s new required rate of return?

6-11) You have a $2 million portfolio consisting of a $100,000 investment in each of 20 stocks. The portfolio has a beta of 1.1. You are considering selling $100,000 worth of one stock with a beta of 0.9 and using the proceeds to purchase another stock with a beta of 1.4. What will the portfolio’s new beta be after these transactions?

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