Reference no: EM132803679
The role of VaR in Enterprise Risk Management:
1. There is an excel template that should be used for this case study VaR quantitative analysis.
2. Please use MS word for the answer to question to consolidate your analysis and narrative.
Mr. Young is the CFO of a $49 million revenue logistics company and has excess cash funds to invest in a specific stock. Based upon his research, he has found that Tesla may be an opportunity to invest excess cash that has built up over the past year from record profits. Tesla, as Mr. Young feels, is on the cutting edge of electric automobiles to the masses. He also believes that the current stock price BETA suggests that the stock price has not been very volatile. However, he wishes to dig deeper and use the VaR calculation to quantify the upside and downside risk to the company to help him recognize if Tesla stock is a good choice.
1. Please see below for the assignment parameters.
- Please visit the link below to gain a greater grasp of VaR and its application to risk. https://www.investopedia.com/articles/04/092904.asp?lgl=rira-baseline-vertical
- Value at Risk - Methods and Free Spreadsheets
2. Next, use Yahoo Finance to gain Tesla (TSLA ticker symbol) monthly closing stock price for the most recent 5 years. Download the information into excel. (There should be 60 data rows) Then cut and paste the date and stock close columns of data into the attached excel template. Once this is completed, the template will automatically calculate the dollar and percentage changes in monthly stock prices and graph the data accordingly.
3. Using a VaR variance/covariance method tab in the Excel Template, calculate the value at risk with the following parameters for Mr. Young's inclusive of the following assumptions:
- Portfolio Value: $143,000
- Average return: 8.6%
- Standard deviation: 10%
- Confidence level: 95%
4. Based upon the findings of your analysis, please use Word to answer what your findings of the data you have collected what are the indicators related to the risk and opportunities for an investment in the stock.
- Tesla VaR benchmarks and what do they mean?
- Copy graphs and VaR Calculation into the Word document. Explain the inferences of the graphs.
- What are the advantages and disadvantages of using VaR?
5. Further, please explain what you would advise Mr. Young to do in terms of his choice of Tesla's investment for the company and what he should explain to the CEO as to possible risk impact on the company.
Note: This is a formal APA paper. You must use at least one (1) SPC Online Library