Answers: Risk Aversion and Security

Your assistant, Thomas, is briefing you on the current portfolio and states We have too much of our portfolio in Alpha. We should probably move some of those funds into Gamma so we can achieve better diversification. Is he right? Hint Feel free to use spreadsheet statistical functions. Here is the data on wholly three stocks. Assume, for convenience, that all three securities do not pay dividends. Alpha, occurrent impairment 40 Current Weight 80% Next Years Price Expansion 48, approach pattern 44, Recession 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 there are two mortgage bankers. Banker 1 has two $1,000,000 mortgages to sell. The borrowers live on opposite sides of the country and face an independent probability of negligence of 5%, with the ban ker able to spare 40% of the mortgage value in case of default.Banker 2 to a fault has two $1,000,000 mortgages to sell, but Banker gs borrowers live on the same street, have the same Job security and income. roll 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 plan 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 high expected return and more risk. Banker Xis MBPS has a high expected return and slight 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 expected 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.