3. (10 points) Suppose the total value of a portfolio is $1,000. Half of the...
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3. (10 points) Suppose the total value of a portfolio is $1,000. Half of the current portfolio is invested in risky assets $500 ( = $1,000 x 0.5) and half in risk-less assets $500 ( = $1,000 x 0.5). Thus, the exposure of this portfolio is $500 (risky assets). And the cushion of this portfolio is given as $200. a) If the market value of the risky assets rises by 20%, please calculate the new allocation of risky and risk-less assets in order to maintain the multiple of this portfolio. b) If the market value of the risky assets then decreases by 16% from the amount in (a), please calculate the new allocation of risky and risk-less assets in order to maintain the multiple of this portfolio
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