b) Analysts at Delfonica Capital have taken the view that due to ZPZ-Bank's loan book being o Eastern European lending it is highly probable the bank will have to set aside capital onperforming loans. As a result, they believe the stock price of ZPZ-Bank will fall in value dvised the fund to invest £10,000. Consider two investment alternatives: i) Borrow 1818 ZPZ-Bank shares (£10,000/5.5=1818.2). Sell these shares at £5.50 each.
b) Analysts at Delfonica Capital have taken the view that due to ZPZ-Bank's loan book being o Eastern European lending it is highly probable the bank will have to set aside capital onperforming loans. As a result, they believe the stock price of ZPZ-Bank will fall in value dvised the fund to invest £10,000. Consider two investment alternatives: i) Borrow 1818 ZPZ-Bank shares (£10,000/5.5=1818.2). Sell these shares at £5.50 each.
Chapter16: Country Risk Analysis
Section: Chapter Questions
Problem 24QA
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![(b) Analysts at Delfonica Capital have taken the view that due to ZPZ-Bank’s loan book being exposed
to Eastern European lending it is highly probable the bank will have to set aside capital to cover
nonperforming loans. As a result, they believe the stock price of ZPZ-Bank will fall in value and have
advised the fund to invest £10,000. Consider two investment alternatives:
(i) Borrow 1818 ZPZ-Bank shares (£10,000/5.5=1818.2). Sell these shares at £5.50 each.
(ii) Spend all the £10,000 buying three-month put options on ZPZ-Bank shares.
It is anticipated that in three months' time, the value of an ZPZ-Bank share will be £5.10. Calculate the
profit Delfonica Capital would have made from each of these alternatives and on that basis comment
on your calculations.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F8d7c214d-32ac-44f1-b249-90701abd866f%2F65f8cf62-cafe-4c64-b94d-93215ec8e990%2F5sdash_processed.png&w=3840&q=75)
Transcribed Image Text:(b) Analysts at Delfonica Capital have taken the view that due to ZPZ-Bank’s loan book being exposed
to Eastern European lending it is highly probable the bank will have to set aside capital to cover
nonperforming loans. As a result, they believe the stock price of ZPZ-Bank will fall in value and have
advised the fund to invest £10,000. Consider two investment alternatives:
(i) Borrow 1818 ZPZ-Bank shares (£10,000/5.5=1818.2). Sell these shares at £5.50 each.
(ii) Spend all the £10,000 buying three-month put options on ZPZ-Bank shares.
It is anticipated that in three months' time, the value of an ZPZ-Bank share will be £5.10. Calculate the
profit Delfonica Capital would have made from each of these alternatives and on that basis comment
on your calculations.
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