Portfolio A has $65 million in stock and $45 million in bonds. Portfolio B has $40 million...

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Finance

Portfolio A has $65 million in stockand $45 million in bonds.
Portfolio B has $40 million in stockand $70 million in bonds.
Portfolio manager A makes a swap with portfolio manager B toexchange stock for bonds with a notional principal of $25million.
Year-end returns are as follows.
Stockreturn 4% Bondreturn 6%
A. Show the asset allocation for eachportfolio before the swap here; Identify as A or B.
Portfolio A
Portfolio B
Dollars
Weights
Dollars
Weights
Stock
Bonds
Total
B. Show the asset allocation for eachportfolio after the swap here; Identify as A or B.
Portfolio A
Portfolio B
Dollars
Weights
Dollars
Weights
Stock
Bonds
Total
C. Show the year-end results withoutthe swap for portfolio A here.
Portfolio A
Portfolio B
Return=
Return=
Which portfolio performed better?
D. Show the year-end results forportfolio A with the swap here.
Portfolio A
Portfolio B
Return=
Return=
Which portfolio performedbetter?
E. Does portfolio manager A gain orlose from this swap and show the dollar amount here.
Show the same results for the year-endvalues for portfolio B.

Answer & Explanation Solved by verified expert

4.4 Ratings (645 Votes)

A Allocation before swapping Portfolio A Portfolio B Dollars Weights Dollars Weights Stock 65 59 40 36 Bonds 45 41 70 64 Total 110 100 110 100 B Allocation after swapping See Answer

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Portfolio A has $65 million in stockand $45 million in bonds.Portfolio B has $40 million in stockand $70 million in bonds.Portfolio manager A makes a swap with portfolio manager B toexchange stock for bonds with a notional principal of $25million.Year-end returns are as follows.Stockreturn 4% Bondreturn 6%A. Show the asset allocation for eachportfolio before the swap here; Identify as A or B.Portfolio APortfolio BDollarsWeightsDollarsWeightsStockBondsTotalB. Show the asset allocation for eachportfolio after the swap here; Identify as A or B.Portfolio APortfolio BDollarsWeightsDollarsWeightsStockBondsTotalC. Show the year-end results withoutthe swap for portfolio A here.Portfolio APortfolio BReturn=Return=Which portfolio performed better?D. Show the year-end results forportfolio A with the swap here.Portfolio APortfolio BReturn=Return=Which portfolio performedbetter?E. Does portfolio manager A gain orlose from this swap and show the dollar amount here.Show the same results for the year-endvalues for portfolio B.

Portfolio A		Portfolio B
Dollars	Weights	Dollars	Weights
Stock Bonds
Total