Result 1 of 1 in this book for Suppose that an investor has shorted shares worth$5,000 of Company A and bought shares worth $3,000 of Company B. Theproportional bid-offer spread for Company A is 0.01 and the proportional bid-offer spread for Company B is 0.02. What does it cost the investor to unwindthe portfolio? Suppose the proportional bid-offer spreads for the twocompanies are normally distributed. For Company A, the bid-offer spread hasa mean of 0.01 and a standard deviation of 0.01. For Company B, theproportional bid-offer spread has a mean of 0.02 and a standard deviation of0.03. What is the cost of unwinding that the investor is 99% confident will notbe exceeded?Clear search X

STEP 1 To liquidate the trade, a shareholder would have to repurchase the shorted equities. When…

Answered: Result 1 of 1 in this book for Suppose…

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter14: Security Structures And Determining Enterprise Values

Section: Chapter Questions

Problem 3EP

See similar textbooks

Similar questions

Suppose XYZ were to do a share split of two to one and the share price falls to K50. (1) Calculate the new divisor that would leave the index unchanged. Explain why this is done. (2) What is a share split, and why is this done? Discuss (3) Suppose XYZ’s final price increases to K110, while ABC price, calculate the percentage change in the price weighted index of the two stocks. Compare that to the percentage return of a portfolio that holds one share in each company. And assume that it is held to maturity and the company does not default on it.
An investor holds a diversified portfolio consisting of a P2,100 investment in each of 10 different common stocks. The portfolio beta is equal to 1.5. You have decided to sell one of your stocks, whose beta is equal to 1, for P2,100 and used the proceeds to buy different P2,100 of stock of a retail company whose beta is 1.2. What will be the new beta of the portfolio? (No rounding off until the final answer)
A non-dividend-paying stock has a current price of 800 ngwee. In any unit of time (t, t + 1) the price of the stock either increases by 25% or decreases by 20%. K1 held in cash between times t and t + 1 receives interest to become K1.04 at time t + 1. The stock price after t time units is denoted by St.Required:I. Calculate the risk-neutral probability measure for the model.II. Calculate the price (at t = 0) of a derivative contract written on the stock with expiry date t = 2 which pays 1,000 ngwee if and only if S2 is not 800 ngwee (and otherwise pays 0).
Options and warrants are dilutive if a. exercise price is lower than average market prices b. exercise price is higher than average market prices c. exercise price is equal to the average market prices d. option shares represent 20% of the common shares outstanding
Assume a stock pays a perpetual dividend of 2 dollars, has a required rate of return of 9%, a relative bid ask spread of 0.5% and a relative trading frequency of 0.1 (μ=0.1). According to the Amihud and Mendelson (1986) model, the price of the stock would be: a.$22.10 b. $2.00 c. $9.02 d. Other e. $14.50 Give typing answer with explanation and conclusion
(ONLY ANSWER QUESTION 2) Consider the three stocks in the following table. Pt represents price at time t, and Qt represents shares outstanding at time t. Stock C splits two-for-one in the last period. P0 Q0 P1 Q1 P2 Q2 A 90 100 95 100 95 100 B 50 200 45 200 45 200 C 100 200 110 200 55 400 1. Calculate the rate of return on a price-weighted index of the three stocks for the first period (t = 0 to t = 1). 2. What must happen to the divisor for the price-weighted index in year 2? 3. Calculate the rate of return of the price-weighted index for the second period (t = 1 to t = 2).
An investor has portfolio of shares consisting of P2,500 investment in each of twenty different ordinary shares. The portfolio beta is equal to 3.00. The investor decided to sell one of shares that has an average beta, for P2,500 and used all the proceeds to buy different share of a telecom company whose beta is 2.00. What will be the new beta of the portfolio?
On the basis of the two stocks' expected and required returns, which stock would be more attractive to a diversified investor? _______________ Calculate the required return of a portfolio that has $6,000 invested in Stock X and $5,000 invested in Stock Y. Do not round intermediate calculations. Round your answer to two decimal places. rp = __________% If the market risk premium increased to 6%, which of the two stocks would have the larger increase in its required return?
Suppose you purchase one share of the stock of Red Devil Corporation at the beginning of year 1 for $46.50. At the end of year 1, you receive a dividend of $2, and buy one more share for $50.50. At the end of year 2, you receive total dividends of $4 (i.e., $2 for each share), and sell the shares for $58.50 each. What is the time-weighted return on your investment? (Round your answer to 2 decimal places. Do not round intermediate calculations.)
An investor holds a diversified portfolio with a beta equal to 1.5, consisting of a P100 investment ineach of 10 different common stocks. He sold one of your stocks that has a beta equal to 0.5 for P100.The whole proceeds were used to purchase another stock that has a beta equal to 1. Determine thebeta of the new portfolio?
An investor holds a diversified portfolio consisting of a P20,000 investment in each of 20 different ordinary stocks. The total investment portfolio amounts to P400,000 while the portfolio beta is equal to 1.2. The investor decided to sell one of the ordinary stocks that has a beta equal to 0.7 for P20,000. The investor plans to use the whole proceeds to purchase another ordinary stock that has a beta of 1.4. What will be the beta of the new portfolio? a. 1.165 b. 1.235 c. 1.222 d. 0.07
What is the beta of a portfolio consisting of one share of each of the following stocks, given their respective prices and beta coefficients? Stock Pricd Beta A $10 1.4 B $24 0.8 C $41 1.3 D $19 1.8 How would the portfolio beta differ if (a) the invesstor purchased 200 shares of stocks B and C for every 100 shares of A and D and (b) equal dollar amounts were invested in each stock?

SEE MORE QUESTIONS

Recommended textbooks for you

Entrepreneurial Finance

Finance

ISBN:

9781337635653

Author:

Leach

Publisher:

Cengage

Financial Reporting, Financial Statement Analysis…

Finance

ISBN:

9781285190907

Author:

James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:

Cengage Learning

Entrepreneurial Finance

Finance

ISBN:

9781337635653

Author:

Leach

Publisher:

Cengage

Financial Reporting, Financial Statement Analysis…

Finance

ISBN:

9781285190907

Author:

James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:

Cengage Learning

SEE MORE TEXTBOOKS