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Consider an investor who holds a position that includes $500,000 invested in a 10-year Japanese government bond futures contract (YGB) and $500,000 invested in a Japanese stock index futures contract (YXF). Their annual volatilities are 6 and 18 percent respectively, with a correlation of -0.4. Assume that returns are normally distributed and VaR should be measured at 99 percent level.
a) What is the portfolio VaR?
b) What is the portfolio gain from diversification benefits?
c) What is the marginal and component VaR of YGB and YXF?
d) Which of the two assets is better to be removed if you want to reduce VaR?
e) What is the incremental VaR from setting YGB to zero?
Assume the spot exchange rate is 6.22 Chinese yuan per U.S. dollar. If the inflation rate in China is expected to be double that in the U.S. for the next two years, then what will happen to the yuan in comparison to the dollar?
Klose Outfitters Inc. believes that its optimal capital structure consists of 65% common equity and 35% debt, and its tax rate is 40%. Klose must raise additional capital to fund its upcoming expansion. What is the WACC for the last dollar raised to ..
Consider the following table for the total annual returns for a given period of time. Series Average return Standard Deviation Large-company stocks 11.7 % 20.6 % Small-company stocks 16.4 33.0 Long-term corporate bonds 6.0 8.7 Long-term government bo..
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The company had paid a regular cash dividend to its stockholders for over 50 years. In its most current operating year, the company experienced a severe cash flow crisis and would be unable to pay its dividend without having to borrow the money.
You want to buy a new sports coupe for $52,250, and the finance office at the dealership has quoted you a 8.0 percent APR loan for 60 months to buy the car. Your monthly payment will be $ ___ and the effective annual rate on this loan is ___ percent.
The US dollar (USD) to Brazilian real (BRL) exchange rate was 0.5793 USD/ BRL on October 21, 2010. By January 17, 2011 it had moved to 0.5934 USD/ BRL. Over the same time-period, BRL 3-month futures had moved from 0.5826 USD/ BRL. Assume the maturity..
The spot exchange rate for the Canadian dollar on December 31, 2014 was 1.1583 C$/US$, while the 3 month Euro-rates on December 31st were quoted at 1.185% per annum and 0.31% per annum for the Canadian and U.S. dollars respectively. What should the 3..
Hank made payments of $137 per month at the end of each month for 30 years to purrchase a piece of property. He promptly sold it for $123,067. What annual interest rate would he need to earn on an ordinary annuity for a comparable rate of return?
Bond valuation relationship: You own a bond that pays $120 in annual interest with a $1,1000 par value. It matures in 10 years. The market's required yield to maturity on a comparable risk bond is 11%. what is the value of the bond if the markets req..
The Anberlin Co. had $294,000 in 2011 taxable income. Use the tax rates from Table 2.3. What is the average tax rate? What is the marginal tax rate?
During a period of significant inflation, a bond earned an annual nominal return of 80%. The rate of inflation over the year was 70%. a. Calculate the real holding period return for the year. b. Compare this real holding period return to the approxim..
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