The gain from a project is equally likely to have any value between - $0.15 million and + $0.85 million. What is the 99% value at risk? A) $0.145 million B) $0.14 million C) $0.13 million D) $0.10 million
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- QUESTION 2: Risk Analysis A company is considering manufacturing 2 mutually exclusive products A and B. Product A is a watch band specifically designed to fit on watches manufactured by the firm only. Product B is a watch band that is designed to be adapted to a variety of watches including those produced by competitors. Expected investment is $100,000 for each of the products. Expected cash flows are $20,000 per year for product A. The expected value for B is $23,000 for 8 years also. The coefficient of variation (CV) for A is 1.0 and for B is 1.5. Because of high risk attached to B the risk adjustment to B is k=15% and for product A, k=10%. Which project would you recommend to the company for investment? (Show ALL your workings)Suppose an investor is concerned about a business choice in which there are three projects, the probability and returns are given below. Probability Return 0.4 $100 0.4 40 The expected value of the uncertain investment is $ ----------- (round off to the nearest dollar.A share of stock of A-Star Inc. is now selling for $23.50. A financial analyst summarizes the uncertainty about the rate of return on the stock by specifying three possible scenarios: Business Condition Scenario, s Probability, p(s) End of Year Price Annual Dividend High growth 1 0.35 $35 $ 4.40 Normal growth 2 0.30 27 4.00 No growth 3 0.35 15 4.00 What are the holding-period returns for a one-year investment in the stock of A-Star Inc. for each of the three scenarios? Calculate the expected HPR and standard deviation of the HPR.
- Stock ABC has a Forward for December at: $450, Is it reasonable that A PUT option on ABC, with a strike of $500, costs $45? A. No because the minimum intrinsic is $50. B. No, because $35 feels low for a stock with such a high price per share. C. Yes because Intrinsic is $40, Extrinsic is $5 D. Yes because it depends on the distribution; that is defined by the volatility and time to maturityIn the table below x denotes the X-Tract Company’s projected annual profit (in $1,000). The table also shows the probability of earning that profit. The negative value indicates a loss. x f(x) x = profit -100 0.01 f(x) = probability -200 0.04 0 100 0.26 200 0.54 300 0.05 400 0.02 8 What is the expected value of profit? a $136 b $142 c $148 d $154Define the term project risk?
- An investor has $24,000 to invest in bonds of AAA and B qualities. The AAA bonds yield an average of 6% and the B bonds yield 10%. The investor requires that at least three times as much money should be invested in AAA bonds as in B bonds. How much should be invested in each type of bond to maximize the return? What is the maximum return? Define the variables needed to solve this problem. Organize your given information. (This part NOT graded, but encouraged.) Write the complete linear programming problem, which includes the objective function and all constraints. Graph and make sure all lines are labeled and shaded/solution region is clear and easy to identify. Create a corner point chart. Remember to mark your solution. Answer in a complete sentence or two: How much should be invested in each type of bond to maximize the return? What is the maximum return?A foundation is holding a fund-raising campaign in a form of a raffle. A raffle ticket costs 120 php and there are 5,000 tickets to be sold. The ticket drawn in the raffle will win for its holder the price of 100,000 php. Compute the expected profit or loss for joining this raffle. A. -120 php B. -88.98php C. -99.98php D. -100php"Mary is in contract negotiations with a publishing house for her new novel. She has two options. OPTION 1: She may be paid $90000 up front, and receive royalties that are expected to total $30000 at the end of each of the next 6 years. Alternatively, OPTION 2: she can receive $100000 up front and no royalties. Which of the following investment rules would indicate that she should take Option 1, given a discount rate of 5%? Rule I: The Net Present Value rule; Rule II: The Payback Rule with a payback period of 2 years.
- Given the following information what is the appropriate amount of safety stock and when should the item be reordered?Lead time average demand = 500 itemsStandard deviation of lead time demand = 48 items (assuming normality)Acceptable stock-out risk during lead time = 3%There are two types of projects in the market: A (safer) and B (riskier). At time 1, the payoff of A will be either $500 (probability 0.75) or $300 (probability 0.25). The appropriate discount rate for project A is 12%. The minimum price A can accept is $350. The payoff of B will be either $800 (probability 0.2) or $100 (probability 0.8). The appropriate discount rate for project B is 20%. In this simple economy, there are 90% chance that the project will be A. Evaluate the funding situation, i.e., which type of project will be funded and the price, based on the following scenarios: When there is no information asymmetry and everyone knows everything. When there is information asymmetry and investors cannot tell if the project is A or B.There are two types of projects in the market: A (safer) and B (riskier). At time 1, the payoff of A will be either $500 (probability 0.75) or $300 (probability 0.25). The appropriate discount rate for project A is 12%. The minimum price A can accept is $350. The payoff of B will be either $800 (probability 0.2) or $100 (probability 0.8). The appropriate discount rate for project B is 20%. In this simple economy, there are 90% chance that the project will be A. Evaluate the funding situation, i.e., which type of project will be funded and the price, based on the following scenarios: If an honest information service firm exists in the market that can separate A from B and provide credible certification. What is the maximum price that the agent can charge for the service? If a bank exists and can provide partial financing and tell the difference between A & B but cannot verify the outcomes, what will be the maximum face values of loans to each project?
