(a) Find the value at risk (VaR) for an investment of $100,000 at 4%. (That is, find out how low the value of this investment could be if the worst 4% of outcomes are ruled out.) The investment is expected to grow during the year by 12% with SD 24%. Assume a normal model forthe change in value.(b) To reduce the VaR to $17,000, how much more expected growth would be necessary? Assume that the SD of the growth remains 24%.(a) The value at risk (VaR) for an investment of $100,000 at 4% is $(Round to the nearest thousand dollars as needed.)

VaR offers a numerical representation of risk, enabling financial institutions and investors to…

(a) Find the value at risk (VaR) for an investment of $100,000 at 4%. (That is, find out how low the value of this investment could be if the worst 4% of outcomes are ruled out.) The investment is expected to grow during the year by 12% with SD 24%. Assume a normal model e change in value. (b) To reduce the VaR to $17,000, how much more expected growth would be necessary? Assume that the SD of the growth remains 24%. (a) The value at risk (VaR) for an investment of $100,000 at 4% is $ (Round to the nearest thousand dollars as needed.)

(a) Find the value at risk (VaR) for an investment of $100,000 at 4%. (That is, find out how low the value of this investment could be if the worst 4% of outcomes are ruled out.) The investment is expected to grow during the year by 12% with SD 24%. Assume a normal model e change in value. (b) To reduce the VaR to $17,000, how much more expected growth would be necessary? Assume that the SD of the growth remains 24%. (a) The value at risk (VaR) for an investment of $100,000 at 4% is $ (Round to the nearest thousand dollars as needed.)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Suppose you have a project that has a 0.6 chance of doubling your investment in a year and a 0.4 chance of halving your investment in a year. What is the standard deviation of the rate of return on this investment? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places.) Answer is complete but not entirely correct. 40.99 Standard deviation %
The risk-free rate is 7%. The expected rate of return on the stock market (S&P500) is 10%. What is the appropriate cost of capital for a project that has a beta of -0.2? Use CAPM formula. Select one: a. Cost of capital = 7.2% b. Cost of capital = 11% c. Cost of capital = 6.4% d. Cost of capital = 12%
Adam Andler Corp is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years. This is just one of many projects for the firm, so any losses on this project can be used to offset gains on other firm projects. What is the project's expected NPV? Do not round the intermediate calculations and round the final answer to the nearest whole number. WACC or cost of capital Net investment cost (depreciable basis) The salvage value of its equipment No other fixed assets will be acquired for following years The company will require an increase in net working capital at the $10,000 beginning The company will liquidate all working capital at the end of the project -10,000 Units sold (constant through years) 60,000 $30.00 $50,000 $17.00 Average price per unit, Year 1 Fixed operating…
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A company is considering a project but the engineers disagree on what the costs and benefits will be over the 6 year lifespan. Assume that interest is 6%. a. What is the present worth of this project if the probabilities for each scenario are accurate? b. If the beta distribution approximation is used, what is the expected value of the initial cost? С. What is the payback period for the most likely alternative with 50% probability? P = 0.25 P = 0.50 P = 0.25 initial cost $10,000 $12,000 $13,000 annual savings $4,000 $5,000 $6,500 annual costs $500 $1,000 $1,500 salvage value $1,000 $2,000 $2,500
Huang Industries is considering a proposed project whose estimated NPV is $12 million. This estimate assumes that economic conditions will be "average." However, the CFO realizes that conditions could be better or worse, so she performed a scenario analysis and obtained these results: Economic Scenario Probability of Outcome NPV Recession 0.05 ($34 million) Below average 0.20 (16 million) Average 0.50 12 million Above average 0.20 16 million Boom 0.05 28 million Calculate the project's expected NPV, standard deviation, and coefficient of variation. Enter your answers for the project's expected NPV and standard deviation in millions. For example, an answer of $13,000,000 should be entered as 13. Do not round intermediate calculations. Round your answers to two decimal places. E(NPV): million σNPV: million CV:
You are going to allocate capital into safe and risky assets. The risky asset will earn 200% return if the economy is good (with a 55% chance). If, otherwise, it will lose 60% of the investment principal. States of Rate of Prob. nature Return According to the Kelly's criterion, how much do you have to allocate for the risky asset to maximize final wealth? (The safe asset earns zero return.) → (1) 35%; (2) 47%; (3) 59%; (4) 65%; 1 Good 55% 200% your |(5) 69%; (6) 75%; (7) 85%; (8) 97%; (9) 102%; (10) 114%; (11) 115%; Bad 45% -60%
In Simpleland, there are only two risky assets in the market, A and B. The information and CAPM estimates of A and B are shown in the following table: A 100 Million 0.09 Market Capitalisation ($) |Variance (o²) Covariance between A and B Expected Return on Market Risk free rate 400 Million 0.01 0.2 20% 10% The manager believes that in the near future, B will outperform A by 5% with uncertainty measured in variance 0.0005. He has also assigned the error of estimating the above CAPM model in terms of variance to be 0.01, i.e. T = 0.01. a) What is the expected return of A and B under CAPM? 2.
You are considering investing in a project with the following possible outcomes: Probability of Investment States Occurrence Returns State 1: Economic boom 18% 20% State 2: Economic growth 42% 16% State 3: Economic decline 30% 3% State 4: Depression 10% -25% Calculate the expected rate of return and standard deviation of returns for this investment, respectively. O 7.35%, 12.99% O2.18%, 1.69% O 8.72%, 12.99% O3.50%, 1.69%
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USE PRESENT WORTH AND CO-TERMINATED ANALYSIS. Show cashflow diagram and complete solution. Consider the three small mutually exclusive investment alternatives in the tablebelow. The feasible alternative chosen must provide service for a 10-year period.The MARR is 12% per year, and the market value of each is 0 at the end of usefullife. Which alternative should be chosen? Use the imputed market valuetechnique in alternative C, epsilon = 10%

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