QUESTION FIVE (5)a) The daily gain from a portfolio is normally distribute I with mean GHS20,000cad standard deviation GHS 0.6 million. Using Besarket risk requirements,calculate the value at risk for determining mician capitalb) Suppose that the spot price of a non-dividend-paying stock is $50, the 3-monthforward price is $55, the 6-month USS interest rate is 10% per annum. Is therean arbitrage opportunity?

Part (b): Arbitrage Opportunity in Forward PricingGiven:Spot price (S) = $50Forward price (F) =…

Answered: QUESTION FIVE (5) a) The daily gain…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 20P

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aa.3 Consider a two-period binomial model, where each period is 6 months. Assume the stock price is $50.00, = 0.20, r = 0.06 and the dividend yield = 3.5%. What is the lowest strike price where early exercise would occur with an American put option?
Using Table 5.3 as your guide, what is your estimate of the expected annual HPR on the market index stock portfolio if the current risk-free interest rate is 4.4%? (Round your answer to 2 decimal places.)
Short Question (SQ2) The market index model can be formulated as: Rea+B Rt + Et, (15%) where R denote the annual excess returns of the risky asset and, RM,t is the excess annual return on the market index, S&P 500. There are two risky funds, A and B, and their returns follow the above market index model. The estimations of annual means, annual standard deviations, and the parameters of the index model for Funds A and B and the S&P 500 index are in the table below. Assets Fund A Fund B S&P 500 (M) Risk premium 13% 7% 10% Standard deviation of Market beta (B) returns 40% 20% 20% 1.0 0.5 1.0 An investor wants to invest $10 thousands into funds A and B, and he plans to allocate 70% of his capital into A and the remaining into B. (A) What would be the alpha, beta, and R-squared for his portfolio (the combination of Funds A and B) under the market index model? (6%) (B) If this investor would like to short sell a hedging portfolio, constructed with S&P 500 index portfolio and the risk-free…
Question 29 Assume the following data for a stock: risk-free rate 5 percent: beta (market) = 1.4; beta (size) - 0.4; beta (book-to- market)-1.1; market risk premium - 13 percent; size risk premium 9.7 percent; and book-to-market risk premium = 11.2 percent. Calculate the expected return on the stock using the Fama-French three-factor model. O 26.5 percent 14.8 percent O 25.1 percent 12.0 percent
Quantitative Problem: You are holding a portfolio with the following investments and betas: Dollar investment Beta 1.35 1.50 0.85 -0.20 Stock A B с $200,000 100,000 500,000 200,000 Total investment $1,000,000 The market's required return is 11% and the risk-free rate is 4%. What is the portfolio's required return? Do not round intermediate calculations. Round your answer to three decimal places. %
Return on risk-free asset = 4.5% Expected return for asset i = 12.75% Expected return on the market portfolio = 9.25% Calculate the risk premium for asset i. A. 3.50% B. 8.25% C. 4.50% D. 4.75% The annual rates of return of Share Z for the last four years are 0.10, 0.15, -0.05, and 0.20. Compute the arithmetic mean annual rate of return for Share Z. Select one: A. 0.04 B. 0.06 C. 0.03 O D. 0.10
5 Consider an asset with current price 26 that provides income 0.50 in 3 months time. The price of a 6-month European call on the asset with strike 24 is ct = 1.75 and the risk free rate is4.5% for all maturities.(i) Show that there is an arbitrage opportunity.(ii) Construct an appropriate arbitrage portfolio to take advantage of the situation and determine the profit per call option used.
Q. 1 £4.50, was held for a year and then sold for £6.20, and which paid a dividend at the end of the holding period of 20p? Q. 2 The risk-free return is 11 per cent, Company J has a beta of 1.8 and an expected return of 21 per cent. Calculate the risk premium for the market index over the risk-free rate assuming J is on the security market line. What is the holding- period return for a share which cost Q. 3 What is Probability Analysis?
vi. Subject :- Accounting
d. The beta for an asset with a required return of 19.559% when the risk-free rate and market return are 10% and 17.9%, respectively, is (Round to two decimal places.)
Question 5 a) The change in the value of a portfolio in 10 days is normally distributed with a mean of (i) GHS500,000 and (ii) GHS0 (zero). The standard deviation is GHS3 million in each case. Calculate the VaR (for both cases) for a confidence level of 99% and a time horizon of 10 days. Deduce the daily VaR.
Raghubhai

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