The city of Detroit recently issued a 5-year zero coupon bond. The face value is $1,000 and there are no coupon payments. In other words, in five years the city should pay the bond owner $1,000. What is the discounted expected value of the bond assuming the interest rate is 3% and there is a 1% probability of default in any year? Please show work
A portfolio is composed of two assets: equities and bonds. Seventy percent of the portfolio is invested in equities with an expected return of 20 percentage points and a standard deviation of 15 percentage points. The remainder of the portfolio is invested in bonds with an expected return of 5 percentage points and a standard deviation of 2 percentage points.
A. What is the expected return AND standard deviation (risk) of the portfolio assuming the correlation is 0.
B. What is the expected return AND standard deviation (risk) of the portfolio assuming the correlation is 0.2 109