Answers: Risk Aversion and Security

Your assistant, Thomas, is briefing you on the current portfolio and states We form likewise much of our portfolio in Alpha. We should probably move some of those funds into da Gamma so we can achieve better diversification. Is he right? breath Feel free to use spreadsheet statistical functions. Here is the data on all three stocks. Assume, for convenience, that all three securities do not conciliate dividends. Alpha, authorized hurt 40 Current Weight 80% following(a) Years Price intricacy 48, Normal 44, break 36 Beta, Current Price 27. 0 Current Weight 20% Next Years Price Expansion 27. 50, Normal 26, Recession 25 Gamma, Current Price 15 Current Weight 0% Next Years Price Expansion 16. 50, Normal 19. 50, Recession 12. It depends. No. Yes. Answer Yes Question 10 (15 points) Suppose t present be two mortgage bankers. Banker 1 has two $1,000,000 mortgages to sell. The borrowers live on diametrical sides of the country and face an independent probability of default of 5%, with the banker able-bodied to keep open 40% of the mortgage value in case of default.Banker 2 also has two $1,000,000 mortgages to sell, merely Banker gs borrowers live on the same street, have the same Job security measures and income. Put differently, the fates and thus solvency of Banker gs borrowers move in lock step. They have a probability of defaulting of 5%, with the banker able to salvage 40% of the mortgage value in case of default. Both Bankers innovation to sell their exceptive mortgages as a bundle in a mortgage-backed security (MBPS) (I. E. , as a portfolio). Which of the following is correct?Banker gs MBPS has a higher evaluate effect and more risk. Banker Xis MBPS has a higher expect return and little risk. Banker Xis MBPS has a higher expected return and more risk. Banker gs MBPS has more risk, but the expected returns on both MBPS are the same. Banker Xis MBPS has more risk, but the expected returns on both MBPS are the same. Banker gs MBPS has a higher ex pected return and less risk. The same. In accordance with the Coursers Honor Code, I (Oddity Vats) certify that the answers here are my own work.