Finance Answers

The company has invested $400,000,000 in stocks and $600,000,000 in bonds. Stocks has a standard of 7%, while bonds have 10%. The correlation between stocks and bonds is 0.10. Calculate the portfolio VaR (DEAR) at 99% given mean of 10%.


Calculate the 1-year expected loss of a $100 million portfolio comprising 10 B-rated issuers. Assume that the 1-year probability of default for each issuer is 6% and the average recovery value for each issuer in the event of default is 40%.

Suppose that it is determined that a $100 million portfolio could potentially lose $20 million once every 20 trading days What is the Var at 95% and 99% Confidence intervals?


Consider a portfolio of equities worth $1,000,000,000 with an expected daily return of 4% and a daily standard deviation of returns of 0.10%. Assume that all returns are normally distributed. What is the daily VaR on this portfolio at a tolerance threshold of 95%? What is the value at risk over a 27-day period?

Five customers deposit Rs. 5, 10, 15, 20 and 25 lakh in a fixed account with Islamic Bank respectively. The first three customers plan to deposit for seven years while the last two customers plan to deposit for five years. Since the fixed account is based on Mudaraba agreement, the Islamic Bank and they agreed on profit rate of 50:50 percent.

Suppose Islamic Bank earns a monthly profit of Rs. 50 lakhs by using this deposited money.


Required:

After giving a reasonable weightages to all customers, calculate the monthly profit rate of each customer.

2. The Capital structure of ABC Ltd, is as under:

Equity share capital - ₹ 100 Lacs

10% Debentures - ₹ 50 Lacs


• The sales for the year 2019 are 1.5 Lac units@ ₹ 40per unit

• Also, the variable cost per unit is 20 % of sales revenue

• ₹ 12 Lacs is the fixed operating cost.

• Assume Income tax rate as 40 %


Calculate Operating, Financial and Combined Leverage of the firm and interpret the result.

Alpha Ltd is expecting annual earnings before interest and tax of ₹ 1.5 Lakhs. The company has 10% debentures of ₹ 4 lakhs and cost of Equity capital is 12%. Calculate the total value of the firm and the overall cost of capital of the firm according to Net Income Approach. Also comment what will happen to the value of the firm and the overall cost of capital if debt is increased in the capital structure.

6. Duration is a widely used measure of a portfolio’s exposure to yield curve movements. You have a 9 percent, $1000.00 bond with 4 years to maturity paid interest semi-annually. Its YTM is 10 percent. Calculate the market value of the bond.

I. A family buys a house worth $326,000. They pay $75,000 deposit and take a mortgage for the balance at J12=9% p.a. to be amortized over 30 years with monthly payments.

II. Fill out the loan amortization schedule provided in the solution template for the first 5 loan payments. What do you notice about the composition of the payment amount?

1. A $4,000 , 12% bond will be redeemed on

May 1,2008. Interest is payable semiannually

on May 1 and November 1.

Find the purchase price of the bond if the date of purchase is May 1, 1998 and

the yield rate is 10% compounded semi-annually.

How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market, that is, do price and quantity rise, fall, or remain unchanged, or are the answers indeterminate because they depend on the magnitudes of the shifts?

a. Demand increases and supply decreases

b. Demand increases and supply is constant