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% ValueatRisk?
5%VAR= .22651.64*.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 3500028s/28s = .5 s= 35000/(.5*28+28) = 834 buy back 166 shares
3. increase collateral, x28000/28000 = .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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 Fall '10
 BrianBoyer
 Standard Deviation, Schwab

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