finance

Assume that you recently graduated and landed a job as a financial planner with Cicero

Services, an investment advisory company. Your first client recently inherited some assets

and has asked you to evaluate them. The client presently owns a bond portfolio with $1

million invested in zero coupon Treasury bonds that mature in 10 years.

The client also

has $2 million invested in the stock of Blandy, Inc., a company that produces meat-andpotatoes frozen dinners. Blandy’s slogan is“Solid food for shaky times.”

Unfortunately, Congress and the President are engaged in an acrimonious dispute over

the budget and the debt ceiling. The outcome of the dispute, which will not be resolved

until the end of the year, will have a big impact on interest rates one year from now. Your

first task is to determine the risk of the client’s bond portfolio. After consulting with the

economists at your firm, you have specified five possible scenarios for the resolution of thedispute at the end of the year. For each scenario, you have estimated the probability of the

scenario occurring and the impact on interest rates and bond prices if the scenario occurs.