1. You are saving for your child’s college in 8 years and have a fixed income portfolio with a duration of 12. What risk do you face? How could you eliminate the risk?
2. A stock has a beta of 2.0, the market expected return is 8% and the riskfree rate is 2%. What is the expected rate of return according to CAPM?
3. One year ago a $1,000 face value, 6% coupon bond with a 5-year term was selling for $1,100. Since then, the market yield has decreased by two percentage points. The bond pays interest semiannually and now has four years to maturity. What is the bond's price today?