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A large all equity pension fund company with AUM of $500 Billion that closely following S&P 500 index is facing a possibility of new regulatory changes in its management of market risk. The new regulation would require capital charges to cover possible tail event losses based on the realistic assessment of market risk of the company. A CRO (Chief Risk Officer) of the fund is given a task to assess a range of possible costs with regards to such charges. The CRO turns to you for your recommendations. In your recommendations, you need to consider the following:
- access the daily price data online for the S&P 500 index (from Jan 1, 2005 to Dec 31, 2014)
- various choices of risk measures
- specificity of the data in terms of its distribution and volatility structure
- tradeoffs between profitability and risk of the implemented charges
- possible adjustments in portfolio strategy
- supporting your answers with graphs / tables
Assume your boss believes the cap is too expensive and is not convinced that the Fed will raise rates at the end of summer 2014. What can you do to reduce the premium, given the availability of the floor as described above? What position have you cre..
Standard Corporation is investing $400,000 of fixed capital in a project that will be depreciated straight-line to zero over its ten-tear life. Annual sales are expected to be $240,000, and annua cash operating expenses are expected to be $110,000. A..
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Lane, Inc., has an issue of preferred stock outstanding that pays a $6.15 dividend every year in perpetuity. If this issue currently sells for $95 per share, what is the required return?
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Discuss the possible causes of the financial crisis. Do you think GFC could be repeated again? Discuss. Explain the scale and impact of financial crisis in economies of different countries including your own country (Thailand), identify some of pr..
Meadow Brook Manor would like to buy some additional land and build a new assisted living center. The anticipated total cost is $20.5 million. How long does the company have to wait before expanding its operations?
E-Loan, an online lending service, recently offered 36 month auto loans at 3.6% to applicants with good credit ratings. If you have a good credit rating and can afford monthly payments of $347, how much can you borrow from A-loan? What is the total i..
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 –$ 359,000 –$ 45,500 1 36,000 23,100 2 56,000 21,100 3 56,000 18,600 4 431,000 13,700 Whichever project you choose, if any, you require a 14 percent return on ..
A newly issued 20-year, $1,000, zero coupon bond just sold for $311.05. What is the implicit interest, in dollars, for the first year of the bond's life?
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