BM 410 HW #7
Free Response
1.
BKM, chapter 3, #7 (page 85)
2.
BKM, chapter 3, #8 (page 85)
3.
Suppose that Intel currently is selling at $20 per share. You buy 1000 shares by
using $15,000 of your own money (investment equity) and borrowing the
remainder of the purchase price from your broker. The rate on the margin loan is
8%.
You are considering two possibilities:
Possibility 1: In one year, the price of Intel is 25.
Possibility 2: In one year, the price of Intel is 15.
a)
For each case described above, what is the value of total assets, liabilities, and
total investment equity in your portfolio in one year?
What is the net return
on equity?
b) For each case described above, find the net return on equity using portfolio
weights
. Show work.
Your answers to part (a) and (b) should be the same.
c)
Given that you expect Intel to return 10% with a standard deviation of 0.18,
what is the expected return and standard deviation of your portfolio?
d) Given your answer in (c), what is your 5% ValueatRisk?
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 Fall '10
 BrianBoyer
 5%, 4%, $20

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