Carolina is considering a $500 investment that will pay $750 with a 30% probability, $600 with a 20% probability, and $350 with a 50% probability. Construct a table showing her probabilities and payoffs. Solve for the expected value, standard deviation, and 95% value at risk of her investment option.
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- Given the data in the table and the information below, please answer the following question. Show all working and formulas used. Maturity (T) r(1) r(2) r(3) r(4) r(5) r(6) Spot Rate (%) 0.15 0.22 0.25 0.28 0.20 0.13 Misty would like to invest 10,000. She is faced with the choice between 2 investments: Option 1: invest for 5 years; Option 2: invest for 3 years and reinvest for another 2 years at a forward rate of 0.07% Should she be indifferent between the choices? If not, which one is the optimal option to Misty?Sam has a portfolio of three assets. Determine the expected rate of return for the portfolio assuming he invests 50 percent of his money in asset A with a 10 percent rate of return, 30 percent in asset B with a 20 percent rate of return, and the remainder in asset C with a 30 percent rate of return?Consider the following portfolio. You write a put option with exercise price $90 and buy a put with the same expiration date with exercise price $95. a. Plot the value of the portfolio at the expiration date of the options. b. Now, plot the profit of the portfolio. Which option must cost more?
- A. Given the data in the table and the information below, please answer the following question. Show all working and formulas used. Maturity (T) r(1) r(2) r(3) r(4) r(5) r(6) Spot Rate (%) 0.15 0.22 0.25 0.28 0.20 0.13 Misty would like to invest 10,000. She is faced with the choice between 2 investments: Option 1: invest for 5 years; Option 2: invest for 3 years and reinvest for another 2 years at a forward rate of 0.07% Should she be indifferent between the choices? If not, which one is the optimal option to Misty? B. Sovereign debt (issued bonds) are typically considered as proxies for risk free. Discuss the reasons why sovereign debt may not be risk free. Why might credit ratings agencies give different credit ratings to sovereign debt issued by the same country, depending on coupons denominated in domestic or foreign currency. C. “Four Cs of credit analysis” is used by analysts to…Suppose you construct a strategy based on options on a stock that is currently selling for $100. The strategy is as follows: Buy one call option having an exercise price of $95. Sell two calls having an exercise price of $100. Buy one call option having an exercise price of $105. All of the options are written on the same stock and all have the same expiration date. Compute the payoff (the dollars you receive) from this strategy at the expiration date for each of the following alternative stocks prices: $90, $95, $98, $100, $102, $105, and $110. What additional information would be required to determine whether your strategy had been profitable? What is the name of this strategy?Sarah purchases a call of CBA with exercise price $55 and sells a call of CBA with exercise price $50, both call options have the same expiration date. a. Draw the payoff diagram for her strategy as a function of the stock price at expiration. b. Draw the profit/loss diagram for this strategy as a function of the stock price at expiration. (hint: which option has a higher premium?).
- Suppose an investor, Erik, is offered the investment opportunities described in the table below. Each investment costs $1,000 today and provides a payoff, also described below, one year from now. Option Payoff One Year from Now 1 100% chance of receiving $1,100 2 50% chance of receiving $1,000 50% chance of receiving $1,200 3 50% chance of receiving $200 50% chance of receiving $2,000 If Erik is risk averse, which investment will he prefer? The investor will choose option 1. The investor will choose option 2. The investor will choose option 3. The investor will be indifferent toward these options. In contrast to his brother Erik, Devin is a risk lover (or exhibits risk seeking behavior). Which of the following statements is true about Devin? Everything else remaining constant, Devin will prefer option 3. Everything else remaining constant, Devin will prefer option 2. Everything else remaining constant,…Suppose an Investor, Erik, is offered the Investment opportunities described in the table below. Each Investment costs $1,000 today and provides a payoff, also described below, one year from now. Option Payoff One Year from Now 1 100% chance of receiving $1,100 2 50% chance of receiving $1,000 50% chance of receiving $1,200 3 50% chance of receiving $200 50% chance of receiving $2,000 If Erik is a risk neutral investor, which investment will he prefer? O Erik will be indifferent toward these options. Erik will choose option 1. Erik will choose option 2. Erik will choose option 3. In contrast, Erik's brother, Devin, is risk averse. Which of the following statements is true about Devin? Everything else remaining constant, Devin will prefer option 1. Everything else remaining constant, Devin will prefer option 2. ○ Everything else remaining constant, Devin will prefer option 3. O None of these options is preferred.(Use Calulator or Formula Approach) Your broker calls you and tells you that he has this great investment opportunity. If you invest $100 today, you will receive $40 in one year and $75 in two years. If you require a 15% return on investments of this risk, should you take the investment?
- Sulsa invests $9,122.85 at t = 0 and $29,100 at t = 2. In return, she receives %3D $28,223 at t = 1 and $10,000 at t = 3. Write down a time 0 equation of value and verify that it is satisfied for V = 0.95, v = 0.97, and v = 0.99. Find the corresponding three yield rates. (Round your answers to two decimal places.) v = 0.95 % v = 0.97 v = 0.99 %For this problem assume that the Capital Asset Pricing Model (CAPM) holds true (with the same riskless rate available for both borrowing and lending). It is August 15, 2020. Nick, Joe, and Kevin Jonas from the celebrated vocal music trio, The Jonas Brothers, each consults with his investment advisor about his investment strategies for the next year. Each of them tells his investment advisor that he wants that advisor to recommend a portfolio position that has the highest expected rate of return for the total risk associated with that position where that total risk is measured by the standard deviation of the position's rate of return. Assume that each investor follows his investment advisor's advice. Assume that over the subsequent year (between August 15, 2020 and August 15, 2021) the actual return on the market portfolio turns out to be 3.86% and the return on riskless one-year treasury bills is 5.65%. The following table gives the actual return that each investor achieved after…Terri Allessandro has an opportunity to make any of the following investments: The purchase price, the lump-sum future value, and the year of receipt are given below for each investment. Terri can earn a rate of return of 6% on investments similar to those currently under consideration. Evaluate each investment to determine whether it is satisfactory, and make an investment recommendation to Terri. The present value, PV Data table Investment A Purchase Price Future Value Year of Receipt $20,032 $28,000 5 B $402 $1,000 21 с $3,266 $7,000 11 D $4,173 $20,000 46 (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Print Done ×
