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?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…
- You are going to invest $50,000 in a portfolio consisting of assets X, Y, and Z, as follows; What is the expected return of this portfolio? Calculate the beta coefficient of the portfolioAn investor has $1000 initial wealth for investment and he borrows another $500 at the risk free rate. He then invest the entire total amount of $1500 in the market portfolio. What is his portfolio beta?You can invest in a portfolio of two assets: the riskfree asset with rate of return 6%, and a risky portfolio with expcected return 16% and stdev 30%. You optimally choose to invest equal amount in both assets. What is your risk aversion (keep 2 decimal places)? A=
- Consider the following portfolio. You write a put option with exercise price 90 and buy a put option on the same stock with the same expiration date with exercise price 95.a. Plot the value of the portfolio at the expiration date of the options.b. On the same graph, plot the profit of the portfolio. Which option must cost more?MansukYou will have a portfolio that is only comprised of two assets. You plan to allocate 47.1% into asset A, which has an expected return of 12.1%. The remainder of your portfolio will be allocated to asset B, which has an expected return of 5.9%. What is your expected return on this two-asset portfolio? State your answer as a percentage with two decimal places (i.e., 13.21, not 0.1321).
- You can invest in a portfolio of two assets: the riskfree asset with rate of return 10%, and a risky portfolio with expected return 14% and stdev 35%. You optimally choose to invest equal amount in the two assets. What is your utility?Suppose you are considering investing your entire portfolio in three assets A, B and C. You expect that after you invest, four possible mutually exclusive scenarios will occur, with associated returns (in %) for each of the three assets as listed below. The probability of each scenario is given below (Attached image). Find the expected returns and standard deviations of Asset A, B & C. (HINT: the expected return is given by the probability-weighted sum of returns in each scenario. The expected standard deviation is given by the square root of the probability-weighted sum of squared deviations from the expected return.) Is there any reason to invest in Asset A given its low expected return and high standard deviation?Laura has an equity portfolio valued at $11.2 million that has a beta of 1.32. She has decided to hedge this portfolio using SPX call option contracts. The S&P 500 index is currently 1402. The option delta is .582. What would Laura's strategy be if she were to effectively hedge her portfolio with call options? What would her strategy be if she decided to use put options?
