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08_CAL

# 08_CAL - BM 410 HW#7 2 BKM chapter 3#8(page 85 a 100*50 =...

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BM 410 HW #7 2. BKM, chapter 3, #8 (page 85) a. 100*50 = 5000 E/5000 = .5 E = 2500 b. 7500- 100p/100p = .3 p= 7500/(.3*100+100)= 57.69 4. c. Given that you expect 1 Intel to return -10% with a standard deviation of 0.18, what is the expected return and standard deviation of your portfolio? E(rp) = 2.33(.04) + (-1.33)*(-.1) = 22.65 SD = 1.33*.25 = .33 d. Given your answer in (c), what is your 5% Value-at-Risk? 5%VAR= .2265-1.64*.33 = - 32.1% f. If the maintenance margin is 25%, how far can Intel's price increase immediately before you get a margin call? Ignore interest earned on collateral account. 35000- 1000p/1000p = .25 p = 35000/(.25*1000+1000) = 28 g. Suppose the price increases to your answer in part (f). Describe the specifics of three transactions you can undertake to satisfy the margin call. Assume that if you want to keep the margin position open, you must raise the margin to 50%. 1. Close out your position, sell stock for \$28 a share repay the liability of 20000 2. reduce liability 35000-28s/28s = .5 s= 35000/(.5*28+28) = 834 buy back 166 shares 3. increase collateral, x-28000/28000 = .5 x= .5*28000+28000 = 42000, give broker additional 7000 BM 410 HW #8 Free Response 1) A stock has an expected return of 15% with a standard deviation of 0.20.

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08_CAL - BM 410 HW#7 2 BKM chapter 3#8(page 85 a 100*50 =...

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