Business Questions: Bond Valuation, CAPM, Risk & Return

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Question 1
Bond Valuation: Consider the following bond that is between coupon interest payments. The bond pays $25 every six months, and there are three years and one month to maturity. The yield for the bond is 6 percent annually. what is the price of the bond ?

Question 2
CAPM: Consider a situation in which T-bills offer a 3.5 percent yield and the market portfolio is expected to provide a 9 percent return with a 20 percent standard deviation. If you own a portfolio that consist of 20 percent T-bills and 80 percent stocks, whose risk level is 15 percent, what is the expected return on the portfolio ?

Hints : SD of returns for T-bills is zero

Question 3
Risk & Return: The return on T-bills is usually considered a proxy for the nominal risk- free rate. Consider the case where the T-bill is offering a 2.5 percent return and inflation is expected to be 1.8 percent. If the risk premium for the stock market is 5 percent, what is the required return to invest in the stock market ?

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Business Questions: Bond Valuation, CAPM, Risk & Return

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