You invest $200 in a newly listed corporate bond. The promised payback on this bond in 2 years' time is $220. You estimate that there is a 2% probability that the company will default on the'bond with a recovery of 10% of the promised amount. There is also an 8% probability that the company will default on the bond and you will be able to recover 70% of the promised amount. With 90% probability, the company will not default and repay the bond in full. What is the 90%-VaR on this bond? O $154 O $220 O SO

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
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You invest $200 in a newly listed corporate bond. The promised payback on this bond in 2 years'
time is $220. You estimate that there is a 2% probability that the company will default on the bond
with a recovery of 10% of the promised amount. There is also an 8% probability that the company
will default on the bond and you will be able to recover 70% of the promised amount. With 90%
probability, the company will not default and repay the bond in full. What is the 90%-VaR on this
bond?
$154
O $220
O $0
$66
None of the other answers are correct.
Transcribed Image Text:You invest $200 in a newly listed corporate bond. The promised payback on this bond in 2 years' time is $220. You estimate that there is a 2% probability that the company will default on the bond with a recovery of 10% of the promised amount. There is also an 8% probability that the company will default on the bond and you will be able to recover 70% of the promised amount. With 90% probability, the company will not default and repay the bond in full. What is the 90%-VaR on this bond? $154 O $220 O $0 $66 None of the other answers are correct.
An oil refiner can refine crude oil to produce jetfuel. The production plans of the refiner involve
acquiring crude at the start of February 2021 and selling jet fuel at the end of February. The refiner
can hedge the associated cash flows by
O shorting crude oil futures contracts that mature at the end of January 2021 and shorting jetfuel futures
contracts that mature at the end of February 2021.
O shorting crude oil futures contracts that mature at the end of January 2021 and buying jetfuel futures
contracts that mature at the end of February 2021.
O going long in crude oil futures contracts that mature at the end of January 2021 and buying jetfuel futures
contracts that mature at the end of February 2021.
O shorting jetfuel fuel futures contracts that mature at the end of January 2021 and buying crude oil futures
contracts that mature at the end of February 2021.
O buying crude oil futures contracts that mature at the end of January 2021 and shorting jetfuel futures
contracts that mature at the end of February 2021.
Transcribed Image Text:An oil refiner can refine crude oil to produce jetfuel. The production plans of the refiner involve acquiring crude at the start of February 2021 and selling jet fuel at the end of February. The refiner can hedge the associated cash flows by O shorting crude oil futures contracts that mature at the end of January 2021 and shorting jetfuel futures contracts that mature at the end of February 2021. O shorting crude oil futures contracts that mature at the end of January 2021 and buying jetfuel futures contracts that mature at the end of February 2021. O going long in crude oil futures contracts that mature at the end of January 2021 and buying jetfuel futures contracts that mature at the end of February 2021. O shorting jetfuel fuel futures contracts that mature at the end of January 2021 and buying crude oil futures contracts that mature at the end of February 2021. O buying crude oil futures contracts that mature at the end of January 2021 and shorting jetfuel futures contracts that mature at the end of February 2021.
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