Consider the following four risky assets:Country ETFAustraliaAustriaBelgiumCanadaRisk-free AssetNote the following:ExpectedReturns10.00%15.00%20.00%28.00%6.00%g=StandardDeviation12.00%17.00%25.00%32.00%0.00%1.552010.11546-0.17965-0.48782CorrelationsAustraliaAustriaBelgiumCanadaAustralia1.000.120.140.65h =Austria0.121.000.330.02-7.581621.430952.233343.91732Belgium0.140.331.00-0.04Canada0.650.02-0.041.00An investor currently has 50% of her money in "Australia" and 50% of her money in"Belgium". However, she wants to create a portfolio with the same expected return as hercurrent portfolio, but with the lowest variance possible using all 4 assets, but not the risk-free asset. What percent of her money should she put into the "Austria" asset to achievethis goal?Answer in decimal format, rounded to 4 decimal places. For example, if your answer is12.124%, enter "0.1212". If your answer is 12.188%, enter "0.1219".

1. Define variables:w_A, w_B, w_C, w_D: Weights of Australia, Belgium, Canada, and Austria,…

Answered: Consider the following four risky…

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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A U.S. firm holds an asset in Israel and faces the following scenario: Probability Spot rate Pº O121.971 12,898.00 1,289.80 State 1 O-52.6316 40% $ IS 0.30 /IS 1,000 State 2 35% $ IS 0.20 /IS 2,500 State 3 25% Where P= Israeli shekel (IS) price of the asset held by the U.S. firm. The "exposure" (i.e.. the regression coefficient beta) is $ 0.15 /IS IS 1.500
A U.S. firm holds an asset in Great Britain and faces the following scenario: State State 2 State 3 1 Probability 25% 50% 25% Spot rate $2.2/E $2/£ $1.8/E P" £3000 £2500 £2000 $6600 $5000 $3600 P where, P-Pound sterling price of the asset held by the U.S. firm P-Dollar price of the same asset The firm should the foreign currency risk. (buy/sell) forward of E at the prevailing 1-year forward price to hedge
(6)(a)Identify the revenue and cost related motives for direct foreign investment. (b)Suppose a U.S. based MNC plans to invest in a new plant either in the U.S or in Zambia. The MNC intends to invest 30% of its investment spending in this new plant while the remainder is devoted to the firm's existing structure in the U.S. The characteristics of the proposed new project are given below: If located in U.S If located in Zambia Mean expected annual returns on investment 25% 25% Standard deviation of expected annual returns on investment 0.09 0.11 Correlation of expected annual returns on investment with returns on prevailing U.S business 0.80 -0.05 Determine, with robust quantitative explanation, which location will best provide the firm with a more stable flow of revenue.
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Please answer this quesiton thank you
Assume the following information: 90-day U.S. interest rate 90-day Malaysian interest rate 3% 5% 90-day forward rate of Malaysian ringgit Spot rate of Malaysian ringgit $0.394 $0.398 Assume that the Santa Barbara Co. in the United States will need 250,000 ringgit in 90 days. It wishes to hedge this payables position. Would it be better off using a forward hedge or a money market hedge? Substantiate your answer with estimated costs for each type of hedge. Do not round intermediate calculations. Round your answers to the nearest dollar. The firm will pay out $ in 90 days if it uses the forward hedge and $ if it uses the money market hedge. Thus, it should use the -Select- hedge.
Problem 19-4 (Algo) Required: Suppose a U.S. investor wishes to invest in a British firm currently selling for £33 per share. The investor has $66,000 to invest, and the current exchange rate is $2/£. Consider three possible prices per share at £31, £36, and £41 after 1 year. Also, consider three possible exchange rates at $1.60/£, $2/£, and $2.40/£ after 1 year. Calculate the standard deviation of both the pound- and dollar- denominated rates of return if each of the nine outcomes (three possible prices per share in pounds times three possible exchange rates) is equally likely. (Do not round intermediate calculations. Round your percentage answers to 2 decimal places.) X Answer is complete but not entirely correct. Standard deviation of pound-denominated return Standard deviation of dollar-denominated return 12.37 19.68 %
An international pension fund manager, uses the concepts of purchasing power parity (PPP) and the International Fisher Effect (IFE) to forecast spot exchange rates. Omni gathers the financial information as follows: Base price level 100 Current U.S. price level 105 Current South African price level 111 Base rand spot exchange rate $ 0.194 Current rand spot exchange rate $ 0.177 Expected annual U.S. inflation 7 % Expected annual South African inflation 5 % Expected U.S. one-year interest rate 10 % Expected South African one-year interest rate 8 % Calculate the following exchange rates (ZAR and USD refer to the South African rand and U.S. dollar, respectively): a. The current ZAR spot rate in USD that would have been forecast by PPP. (Do not round intermediate calculations. Round your answer to 4 decimal places.) b. Using the IFE, the expected ZAR spot rate in USD one year from now. (Do not round intermediate calculations.…
The table below contains the average returns, standard deviation of returns and correlation of returns with US indexfor different countries. All data are in US dollar terms. The US T-Bill rate is 3%. Determine which of thesecountries are suitable for a US based investor to diversifv into. Show the necessarv calculationsUS T-Bill Rate %3
Percentage Depreciation Inflation Effects on Exchange Rates Assume that the U.S. inflation rate becomes high relative to Canadian inflation. Other things being equal, how should this affect the (a) U.S. demand for Canadian dollars, (b) supply of Canadian dollars for sale, and (c) equilibrium value of the Canadian dollar?

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