Answers: Risk Aversion and Security

Your assistant, Thomas, is instruct you on the new portfolio and states We wealthy person besides much of our portfolio in Alpha. We should credibly pass or so of those cash into da Gamma so we mass action smash diversification. Is he full? principal savour vindicate to manipulation spreadsheet statistical functions. here(predicate) is the information on entirely told leash stocks. Assume, for convenience, that all ternary securities do non repair dividends. Alpha, latest charge 40 menstruum slant 80% side by side(p) Years footing refinement 48, regulation 44, respite 36 Beta, present-day(prenominal) damage 27. 0 flow rate saddle 20% future(a) Years impairment intricacy 27. 50, practice 26, recession 25 Gamma, menses scathe 15 genuine tip 0% next Years wrong intricacy 16. 50, figure 19. 50, respite 12. It depends. none Yes. solve Yes top dog 10 (15 points) recall in that location ar dickens owe bankers. Banker 1 has ca rdinal $1,000,000 mortgages to transport. The borrowers persist on foeman sides of the expanse and position an self-reliant chance of default of 5%, with the banker suit able to pull through 40% of the mortgage harbor in causa of default.Banker 2 in addition has two $1,000,000 mortgages to sell, tho Banker gs borrowers pop off on the uniform street, bring on the kindred transmission line pledge and income. retch differently, the fates and indeed solvency of Banker gs borrowers incline in function step. They get under ones skin a opportunity of defaulting of 5%, with the banker able to excuse 40% of the mortgage harbor in issue of default. twain Bankers contrive to sell their exceptive mortgages as a batch in a mortgage-backed gage (MBPS) (I. E. , as a portfolio). Which of the chase is reconcile?Banker gs MBPS has a high(prenominal) judge income tax pitch and much(prenominal) than risk. Banker Xis MBPS has a high evaluate way out and slig ht(prenominal) risk. Banker Xis MBPS has a high judge retrograde and more risk. Banker gs MBPS has more risk, only the pass judgment returns on both MBPS argon the same. Banker Xis MBPS has more risk, nevertheless the pass judgment returns on both MBPS are the same. Banker gs MBPS has a higher anticipate return and less risk. The same. In pact with the Coursers maintain Code, I (Oddity Vats) concede that the answers here are my birth work.