1)

Given , Spot Rate : 1EUR = USD1.1650

180 days Interest rate of Euro= 2.35% and USD=2.95%

By using interest rate Parity theory

180 days forward rate

1Euro= 1.1650(1.01475)/1.01175

1Euro= USD1.1684

Swap Point=.1684-.1650 =0.0034

Hence Option (b) 0.0034 is correct

2)

1.

Calculating individual returns at different expected economies, we get,

Recession= (63-75)/75= -16%

Normal Times= (83-75)/75= 10.67%

Expansion= (95-75)/75= 26.67%

Expected return is calculated as the weighted probabilities of the returns.

So, Expected return= 0.2*-16%+(0.65*10.67%)+(0.15*26.67%)= 7.73%

Variance can be calculated as:

0.2*(-16%-7.73%)^2+0.65*(10.67%-7.73%)^2+0.15*(26.67%-7.73%)^2= 0.017202.

So, Standard deviation= sqrt(0.017202)= 13.12%.

2.

A typical, risk-averse investor with a well-diversified portfolio would prefer a stock with low beta. Among the stocks, Stock C has lowest beta with 0.26. So, the investir would prefer Stock C.

3.

Expected Return of a 3 stock portfolio is a weighted average of individual returns. It is calculated as (w1*r1)+(w2*r2)+(w3*r3)

Expected return of the portfolio= (45%*7.73%)+(30%*6%)+(25%*4.739%)= 6.46%.

Standard deviation of a 3 stock portfolio is calculated as sqrt((w1^2*sd1^2)+(w2^2*sd2^2)+(w3^2*sd3^2)+(2*w1*w2*c12*sd1*sd2)+(2*w2*w3*c23*sd2*sd3)+(2*w3*w1*c31*sd3*sd1)); where w is weight of the stock, sd is standard deviation of the stock and cxy is the correlation between stock x and stock y.

Standard deviation of the portfolio= sqrt((45%^2*13.12%^2)+(30%^2*30%^2)+(25%^2*23%^2)+(2*45%*30%*13.12%*30%*0.52)+(2*30%*25%*30%*23%*0.46)+(2*25%*45%*23%*13.12%*0.42))= 16.74%

4.

Beta of a 3 stock portfolio is a weighted average of individual Betas. It is calculated as (w1*Beta1)+(w2*Beta2)+(w3*Beta3)

Beta of the Portfolio= (45%*0.64)+(30%*0.42)+(25%*0.26)= 0.48.