The diagrams below show the ranges of attainable portfolios (combinations of expected return and
a. Which diagram is incorrectly drawn and why?
b. Which is the efficient set of portfolios?
c. If rf is the risk
Markowitz theory and CAPM
Find the weights of Dell and Microsoft in a portfolio with the minimum variance.
Plot all portfolios from the previous parts on the mean-standard deviation graph.
Lambeth Walk invests 60 percent of his funds in stock I and the balance in stock J. The standard
deviation of returns on I is 10 percent, and on J it is 20 percent. The expected return on I is 5
percent, and on J it is
It is sometimes more convenient to describe the curve by expressing both coordinates as
functions of a third variable . The Mean-Variance Frontier is a parametric curve and is
described by parametric equations:
E(rp) = f() = r1 + (1- )r2 = 0
Multifactor models and the APT
Assume that stock returns are generated by a two-factor model. The returns on three welldiversified portfolios, A, B and C, are given by the following expressions:
rA 0.1 F1 0.5F2
rB 0.08 2 F1 F2
Term Structure of Interest Rates
You have estimated spot rates as follows:
What are the forward rates for each period?
Calculate the PVs of the following governmen
The table below reports the accounting information for Alpha plc per 1 stock. Assume that the
dividends will grow at the same constant rate after year 3 forever.
You have bought a bond with 5 year maturity, $1000 face value and 7% coupon. The yield to
maturity is 12%. How much have you paid for this bond?
Which price would you like to pay for a two-year zero-coupon bond with a f
The current value of a share in Robotronics is $12.50. The one year riskless rate is 6%.
a) What are the prices of three- and five-year forward contracts on Robotronics stock?
b) Three-year forward contracts are current