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  3. a. the risk of a portfolio is the variance of its

A. The risk of a portfolio is the variance of its return; however, the variance...

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A. The risk of a portfolio is the variance of its return; however, the variance of the returns on an individual asset is not appropriate measure of its risk. Discuss and explain this statement in a 1-2 paragraphs. B. Assume that on 1 September 2021 the 10-year government bonds issued by France have a triple-A credit rating. Analogous government bonds issued by Italy (same coupon rate, face value, and maturity) also have a triple-A credit rating. Assume that credit ratings appropriately and precisely measure a country's creditworthiness. Assume that on 1 September the yield to maturity on both countries' bonds is 5%. This then also means that the spread between the interest rate on the French 10-year bonds and that on Italian bonds is zero. If some unexpected news hits the market on September 2 and, as a result, Italian government bonds are immediately downgraded to a double-A rating while French bonds maintain their triple-A rating, then what do you expect to happen to the yield-to-maturity on French and Italian 10-year bonds and to the corresponding spread? Explain

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