An

investor has preferences represented by the utility function

Suppose the optimal risky portfolio P*

has E(r) = 0.1 and σ = 0.2. The risk-free rate is 0.02, and the

risk aversion coefficient for an investor is 4. What is the optimal

portfolio weight in P* when you construct the optimal complete portfolio?

Security X has expected return of 14% and standard deviation

of 22%. Security Y has expected return of 16% and standard deviation of 28%. If

the two securities have a correlation coefficient of 0.8, what is their

covariance? 

Consider two perfectly negatively correlated risky

securities, K and L. K has an expected rate of return of 10% and a standard

deviation of 30%. L has an expected rate of return of 8% and a standard

deviation of 18%. The risk-free portfolio that can be formed with the two

securities will earn _____ rate of return.

Consider a semi-annual coupon bond with a face value of $100,

an annual coupon rate of 30%, time‐to‐maturity of 5 years and an annual yield‐to‐maturity

of 7%. What should be its price?

Based

on this information, what is the price of a 2-year bond with a coupon rate of

5% and face value of $100?

The UK government issues a 5-year bond, which makes annual

coupon payments of 5% and offers a yield of 3% annually compounded. Suppose

that one year later the bond still yields 3%. What return has the bondholder

earned over the 12-month period?

A $1,000

face value annual coupon payment bond with 3 years to maturity with a 12%

annual coupon rate has an annualized yield-to-maturity of 9%. What is the Macaulay

duration of the bond?

Consider

an annual coupon bond with a face value of $100, an annual coupon rate of 20%, time‐to‐maturity

of 6 years and an annualized yield‐to‐maturity of 4%. What would be the holding

period return of buying the bond today and selling it after one year if

interest rates in one year’s time are such that the bond’s yield‐to‐maturity is

5%?

Consider an annual coupon bond with a face value of $100, an annual

coupon rate of 30%, time‐to‐maturity of 3 years, and an annual yield‐to‐maturity

of 7%. What should be its price?