(iv)investment in Asset A and a K300,000investment in Asset B. Assume that the daily volatilities of theassets are 1.5% and 1.8% respectively, and that the coefficient ofcorrelation between their returns is 0.4. What is theConsider a position consisting of a K200,000five day 95% Value at Risk (VaR) for the portfolio (95%confidence level represents 1.65standard deviations on the left side of a normal distribution)? QUESTION TWOWila is a risk-analyst at Deli Bank (DB), a commercial bankwith operations in Zambia. DB is currently expanding itsoperations to include proprietary trading and is reviewing its riskmanagement policies. DB uses Value at Risk (VaR) models tomonitor its risk exposures.DB's current portfolio of currencies contains only longpositions. The volatility of the currencies in its portfolio hasrecently increased, and Wila expects volatility to remain highover the next several quarters. As a result, she has hedged theportfolio using currency options.

Value at risk is used to measure the amount of potential risk that could occur to an investment…

Answered: Wila is a risk-analyst at Deli Bank…

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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Similar questions

Which of the following is an example of a systematic risk? Bond investor invests in a Japanese investment grade bond and receives coupon payments in Japanese yens A firm hires a former politician with ties to the Republican party when a political climate in the state changes U.S. government announces an increase in corporate tax rate Bond investor receives news about a bond issuer issuing another corporate bond
The Knowles/Armitage (KA) group at Merrill Lynch advises clients on how to create a diversified investment portfolio. One of the investment alternatives they make available to clients is the All World Fund composed of global stocks with good dividend yields. One of their clients is interested in a portfolio consisting of Investment in the All World Fund and a treasury bond fund. The expected percent return of an investment in the All World Fund is 9.80% with a standard deviation of 15.00%. The expected percent return of an investment in a treasury bond fund is 5.70% and the standard deviation is 4.00%. The covariance of an investment in the All World Fund with an investment in a treasury bond fund is -12. a. Which of the funds would be considered the more risky? Select your answer: Why? It has a - Select your answer- b. If KA recommends that the client invest 75% in the All World Fund and 25% in the treasury bond fund, what is the expected percent return and standard deviation for such…
Kelli Blakely is a portfolio manager for the Miranda Fund, a core large-cap equity fund. The benchmark for performance measurement purposes is the S&P 500. Although the Miranda portfolio generally mirrors the asset class and sector weightings of the S&P, Blakely is allowed a significant amount of leeway in managing the fund. Blakely was able to produce exceptional returns last year (as outlined in the table below) through her market timing and security selection skills. At the outset of the year, she became extremely concerned that the combination of a weak economy and geopolitical uncertainties would negatively impact the market. Taking a bold step, she changed her market allocation. For the entire year her asset class exposures averaged 50% in stocks and 50% in cash. The S&P's allocation between stocks and cash during the period was a constant 97% and 3%, respectively. The risk-free rate of return was 2%. One-Year Trailing Returns Miranda Fund 10.2% 37% Return Standard deviation Beta…
Suppose interest rates on Treasury bonds rose from 5% to 9% as a result of higher interest rates in Europe. What effect would this have on the price of an average company's common stock? (Hint: in your explanation consider alternative investment to common stocks; a relatively riskless investment)
Which of the following situations represent(s) arbitrage opportunity(ies)? Select one or more: A well diversified portfolio with zero systematic risk has an expected return higher than the riskfree deposit/borrowing rate. A Japanese bank is offering a JPY borrowing rate of 0.01% while an Australian bank is offering an AUD deposit rate of 6%. A well diversified portfolio with zero systematic risk has an expected return lower than the riskfree deposit/borrowing rate. An asset is having a significantly positive Jensen's alpha.
A large bank is quoting the following spot exchange rates for number of YEN per USD, number of THB per USD and number of YEN per THB respectively. YEN/USD = 116.91 -- 116.95 THB/USD = 44.30 -- 44.40 YEN/THB = 2.6900 -- 2.7100. You are trader at Axe Capital, a US hedge fund, and your job is to try to find arbitrages in the currency markets. You have 10 mio USD risk capital provided by your fund. Using the 10 mio USD risk capital, how much arbitrage (guaranteed risk-free) profit can you make. If there is no arbitrage possible, enter zero. Give your answer in USD to the nearest USD. Please Do your calculation in excel and do not round anything until the very end.
With reference to the information given above, Discuss the relationship between risk and return of the individual securities. Demonstrate the meaning and advantages of diversification by constructing a portfolio consisting of equal investments in the High-Tech Co. and the Counter- Cyclical Co. Explain your idea and show your work clearly. Perform calculations or quantitative analyses to support your answers where necessary.
A Chinese investor invests in U.S. Treasury bills. If the Chinese renminbi (RMB) appreciates during the holding period against the U.S. dollar (USD), this investment increases in value but default risk remains unchanged. declines in value and decreases in default risk. declines in value but default risk remains unchanged. increases in value and decreases in default risk.
“Inside the company fixed income managers bought bonds but they did not keep them for very long at all. Instead, they were constantly buying, exchanging and selling the bonds in their portfolios” Explain why the behavior described in the above quote may happen in terms of interest-rate risk immunization and downgrade risk. Do not discuss speculation or arbitrage as causes of this behavior as these will not gain any credit in this examination.
An investor has conducted research on two individual stocks, high-risk (H) and low-risk (L), and the market with the following characteristics: Regarding risk-free rate, the lending rate is 2% and the borrowing rate is 5%. The investor can borrow a maximum of £50,000. He also assumes that non-market movements between stocks H and L are uncorrelated. a) Using the CAPM and the lending rate, calculate the alphas for stocks H and L. Indicate which stocks are over-/under- or correctly priced b) Construct an arbitrage portfolio by first leveraging stock L to match the beta of stock H. Calculate the return difference between the long and short portfolios. (Note: Leveraging means using margin purchase.)
You are evaluating the expected performance of two stocks, Alibaba and Bank of China.You gathered the following informationRisk-free rate = 5%Expected return for a Hong Kong market = 11.5%Beta of Alibaba = 1.5Beta of Bank of China = 0.8 Based on your analysis, you forecast the return on these 2 stocks are 13.25% for Alibaba and11.25% for Bank of China.i) Calculate the required rate of return for Alibaba and Bank of Chinaii) Indicate whether each stock is undervalued, fairly valued or overvalued.
about SOFR and LIBOR a SOFR represents the interest rate of the unsecured funds LIBOR is a good proxy of the risk-free rate SOFRS include triparty repo data from the Bank of New York Mellon (BNYM) and the Depository Trust & Clearing Corporation (DTCC). LIBOR now in 2020 is still the most influential interest rate in the international market.

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