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1- Consider a position consisting of a $300,000 investment in gold and a $500,000 investment in silver. Suppose that the daily volatilities of these two assets are 1.8% and 1.2% respectively, and that the coefficient of correlation between their returns is 0.6. What is the 10-day 97.5% VaR for the portfolio? By how much does diversification reduce the VaR?
2- Consider a portfolio of options on a single asset. Suppose that the delta of the portfolio is 12, the value of the asset is $10, and the daily volatility of the asset is 2%. Estimate the one-day 95% VaR for the portfolio from the delta.
Midwest Packaging’s ROE last year was only 3 percent, but its management has developed a new operating plan that calls for a total debt ratio of 50 percent, which will result in annual interest charges of $300,000. Management projects an EBIT of $1,0..
You are examining balance sheets for 2012 and 2013 and you observe that a company's net fixed assets increased from $45 million to $50 million. The income staement states that depreciation was $2 million. If it's the case that the company purchased a..
Use supply and demand to model the equilibrium price for bonds.
Silverton Co. is comparing two different capital structures. What is the price per share of equity under Plan I?
The following table shows the price of $1000 face value 1-year, 2-year, 3-year, 9-year and 10-year US Treasury zero coupon bonds as of Oct. 17, 2016. Use pure expectations hypothesis to determine: the expected interest rate on a 1-year bond one year ..
A project requires an initial cash outlay of $95,000 and has expected cash inflows of $20,000 annually for 9 years. The cost of capital is 10%. What is the project’s IRR?
Determining the appropriate target cash balance involves assessing the trade-off between: A. income and diversification. B. the benefit and cost of liquidity. C. balance sheet strength and transaction needs. D. All of these. E. None of these.
Calculate the cost of equity using the dividend growth model method. Calculate the cost of equity using the SML method.
Shany market recorded the following events involving a recent purchase of inventory
Upon graduation you take out a 30 year mortgage loan at 6.53% APR to buy a $750,000 house. You put down 20% of the loan amount, and expect to make monthly payments. You pay back the loan after 20 years by making one single lump sum payment. The amoun..
The risk-free interest rate is 5% per annum with continuous compounding. What is the value of a 6-month European call option with a strike price of $51?
Suppose you are committed to owning a $196,000 Ferrari. If you believe your mutual fund can achieve a 12 percent annual rate of return and you want to buy the c
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