User Account

All Pages

What would be the return on sc portfolio

Assignment Help Finance Basics
Reference no: EM133119530

Consider an economy with two hedge funds, short capital (SC) and long capital (LC), and two risky assets, assets A and B. Each hedge fund has $100 million of capital. The price of asset A is ???? = $50 and the price of asset B is ???? = $100. The margin required to short asset ?? is ???? = $5 and the rebate rate is equal to zero. The hedge funds can use a repo contract to finance a position in asset ??, where the repo rate is equal to zero and the haircut is ???? = $10.

1. SC is pessimistic about asset A and uses all its capital to finance a short position on asset A. What is the maximum number of shares SC can short? What is the (minimum) percentage price change required to make SC to lose all its investment? If the price of asset A goes down next period by 5%, what is the return on SC's portfolio? What would be the return on SC's portfolio if ???? = $50?

2. LC is optimistic about asset B and uses all its capital to finance a long position on asset B. What is the maximum number of shares LC can afford? What is the (minimum) percentage price change required to make LC to lose all its investment? If the price of asset B goes up next period by 5%, what is the return on LC's portfolio? What would be the return on LC's portfolio if ???? = $100?

3. Discuss the role of margin requirements on magnifying the return of both long and short strategy

Reference no: EM133119530

Questions Cloud

Calculate how much capital the bank would have to hold : The Basel Capital Accords are the most important of the regulations that banks must satisfy. Consider a bank with the following assets on its balance sheet.
How much capital the bank would have to hold : If this bank was required to hold 8% of its risk weighted assets as capital, calculate how much capital the bank would have to hold.
Prepare general journal entries to record the entry of dent : Dent is admitted to the partnership on May 1, 2020, with a 25% equity. Prepare General Journal entries to record the entry of Dent
What is your investment recommendation : ROSS estimates a 25% probability for a successful exit, with an expected exit time in 3 years. What is your investment recommendation
What would be the return on sc portfolio : Consider an economy with two hedge funds, short capital (SC) and long capital (LC), and two risky assets, assets A and B. Each hedge fund has $100 million of ca
Thesis for a long straddle stock nvidia : A thesis for a long straddle stock Nvidia (Ticker: NVDA)? Why do you think Nvidia would be a good option for a long straddle stock in 2022?
Explain the income-related items : What financial statement, which can be reported with or separate from the income statement, includes income-related items that affect the balance sheet but are
Demographic and psychographic data : Engage in an active dialog with your classmates as if you were in a classroom. Using proper demographic and psychographic data to support who your target market
Local bank and promise to repay amount : Suppose you borrow $7,800 from a local bank and promise to repay this amount at the end of 3 years at the interest rate of 9%, how much would you have to repay

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd