Suppose you are a British venture capitalist holding a major stake in an e-commerce start-up in Silicon Valley. As a British resident, you are concerned with the pound value of your U.S. equity position. Assume that if the American economy booms in the future, your equity stake will be worth $1,002,540, and the exchange rate will be $1.4/E. If the American economy experiences a recession, on the other hand, your American equilty stake will be worth $502.880, and the exchange rate will be $16/E. You assess that the American economy will experience a boom with a 50 percent probability and a recession with a 50 percent probability. a. Estimate your exposure to the exchange risk. (Round final answer to nearest dollar.) Exposure b. Compute the variance of the pound value of your American equity position that is attributable to the exchange rate uncertainty. (Round final answer to nearest dollar.) Vanance

Suppose you are a British venture capitalist holding a major stake in an e-commerce start-up in Silicon Valley. As a British resident, you are concerned with the pound value of your U.S. equity position. Assume that if the American economy booms in the future, your equity stake will be worth $1,002,540, and the exchange rate will be $1.4/E. If the American economy experiences a recession, on the other hand, your American equilty stake will be worth $502.880, and the exchange rate will be $16/E. You assess that the American economy will experience a boom with a 50 percent probability and a recession with a 50 percent probability. a. Estimate your exposure to the exchange risk. (Round final answer to nearest dollar.) Exposure b. Compute the variance of the pound value of your American equity position that is attributable to the exchange rate uncertainty. (Round final answer to nearest dollar.) Vanance

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Suppose you are a British venture capitalist holding a major stake in an e-commerce start-up in Silicon Valley. As a British resident, you are concerned with the pound value of your U.S. equity position. Assume that if the American economy booms in the future, your equity stake will be worth $946, and the exchange rate will be $1.34/£. If the American economy experiences a recession, on the other hand, your American equity stake will be worth $768, and the exchange rate will be $1.39/£. You assess that the American economy will experience a boom with a 80 percent probability and a recession with the remaining probability. Estimate the expected value of the spot rate (in £ X.XXXX)
Suppose you are a British venture capitalist holding a major stake in an e-commerce start-up in Silicon Valley. As a British resident, you are concerned with the pound value of your U.S. equity position. Assume that if the American economy booms in the future, your equity stake will be worth $933, and the exchange rate will be $1.32/£. If the American economy experiences a recession, on the other hand, your American equity stake will be worth $788, and the exchange rate will be $1.39/£. You assess that the American economy will experience a boom with a 50 percent probability and a recession with the remaining probability.Estimate the Covariance between P and S (X.XXX)
Suppose you are a British venture capitalist holding a major stake in an e-commerce start- up in Silicon Valley. As a British resident, you are concerned with the pound value of your U.S. equity position. Assume that if the American economy booms in the future, your equity stake will be worth $1,001,140, and the exchange rate will be $1.4/£. If the American economy experiences a recession, on the other hand, your American equity stake will be worth $501,280, and the exchange rate will be $1.6/£. You assess that the American economy will experience a boom with a 30 percent probability and a recession with a 70 percent probability. a. Estimate your exposure to the exchange risk. (Round final answer to nearest dollar.) Exposure b. Compute the variance of the pound value of your American equity position that is attributable to the exchange rate uncertainty. (Round final answer to nearest dollar.) Variance
Suppose you are a British venture capitalist holding a major stake in an e-commerce start-up in Silicon Valley. As a British resident, you are concerned with the pound value of your U.S. equity position. Assume that if the American economy booms in the future, your equity stake will be worth $1,001,980, and the exchange rate will be $1.4/£. If the American economy experiences a recession, on the other hand, your American equity stake will be worth $502, 240, and the exchange rate will be $1.6/£. You assess that the American economy will experience a boom with a 50 percent probability and a recession with a 50 percent probability. a. Estimate your exposure to the exchange risk. (Round final answer to nearest dollar.) b. Compute the variance of the pound value of your American equity position that is attributable to the exchange rate uncertainty. (Round final answer to nearest dollar.)
Suppose you are a British venture capitalist holding a major stake in an e-commerce start-up in Silicon Valley. As a British resident, you are concerned with the pound value of your U.S. equity position. Assume that if the American economy booms in the future, your equity stake will be worth $1,001,280, and the exchange rate will be $1.4/£. If the American economy experiences a recession, on the other hand, your American equity stake will be worth $501,440, and the exchange rate will be $1.6/£. You assess that the American economy will experience a boom with a 40 percent probability and a recession with a 60 percent probability. a. Estimate your exposure to the exchange risk. (Do not round intermediate calculations.) Exposure b. Compute the variance of the pound value of your American equity position that is attributable to the exchange rate uncertainty. (Do not round intermediate calculations.) Variance
Suppose you are a British venture capitalist holding a major stake in an e-commerce start-up in Silicon Valley. As a British resident, you are concerned with the pound value of your U.S. equity position. Assume that if the American economy booms in the future, your equity stake will be worth $1,001,000, and the exchange rate will be $1.4/£. If the American economy experiences a recession, on the other hand, your American equity stake will be worth $501,120, and the exchange rate will be $1.6/£. You assess that the American economy will experience a boom with a 60 percent probability and a recession with a 40 percent probability. a. Estimate your exposure to the exchange risk. (Round final answer to nearest dollar.) Exposure b. Compute the variance of the pound value of your American equity position that is attributable to the exchange rate uncertainty. (Round final answer to nearest dollar.) Variance
Suppose you are a British venture capitalist holding a major stake in an e-commerce start-up in Silicon Valley. As a British resident, you are concerned with the pound value of your U.S. equity position. Assume that if the American economy booms in the future, your equity stake will be worth $1,000,000, and the exchange rate will be $1.40/£. If the American economy experiences a recession, on the other hand, your American equity stake will be worth $500,000, and the exchange rate will be $1.60/£. You assess that the American economy will experience a boom with a 70 percent probability and a recession with a 30 percent probability. What is your estimated exposure to the exchange risk? [Pick the closest number for your answer.] £4,511,976 $4,511,976 -$3,445,231 -£3,445,231
Suppose you are a British venture capitalist holding a major stake in an e-commerce start-up in Silicon Valley. As a British resident, you are concerned with the pound value of your U.S. equity position. Assume that if the American economy booms in the future, your equity stake will be worth $1,000,000, and the exchange rate will be $1.58 per pound. If the American economy experiences a recession, on the other hand, your American equity stake will be worth $500,000, and the exchange rate will be $1.78 per pound. You assess that the American economy will experience a boom with a 70 percent probability and a recession with a 30 percent probability. Required: a. Estimate your exposure to the exchange risk. b. Compute the variance of the pound value of your American equity position that is attributable to the exchange rate uncertainty. c-1. How would you hedge this exposure? c-2. If you hedge, what is the variance of the pound value of the hedged position?
Suppose you are a British venture capitalist holding a major stake in an e-commerce start-up in Silicon Valley. As a British resident, you are concerned with the pound value of your U.S. equity position. Assume that if the American economy booms in the future, your equity stake will be worth $1,000,000, and the exchange rate will be $1.40 per pound. If the American economy experiences a recession, on the other hand, your American equity stake will be worth $500,000, and the exchange rate will be $1.60 per pound. You assess that the American economy will experience a boom with a 70 percent probability and a recession with a 30 percent probability. Required: a. Estimate your exposure to the exchange risk. b. Compute the variance of the pound value of your American equity position that is attributable to the exchange rate uncertainty. c-1. How would you hedge this exposure? c-2. If you hedge, what is the variance of the pound value of the hedged position? Complete this question by…
Suppose you are working for a company based in Ireland (where the euro is used). This company exports product to the UK, but invoices its prices in euros (instead of pounds). Suppose you believe the euro will appreciate versus the pound over the coming year. Would that impact the profitability of your company this year? If not, explain. If so, explain how (and the type of risk you’re facing.
Suppose you are a British venture capitalist holding a major stake in an e-commerce start-up inSilicon Valley. As a British resident, you are concerned with the pound value of your U.S. equityposition. Assume that if the American economy booms in the future, your equity stake will be worth $1, 000, 000, and the exchange rate will be $1.66 per pound. If the American economy experiences arecession, on the other hand, your American equity stake will be worth $500, 000, and the exchangerate will be $1.86 per pound. You assess that the American economy will experience a boom with a70 percent probability and a recession with a 30 percent probability. Required: a. Estimate yourexposure to the exchange risk. b. Compute the variance of the pound value of your American equityposition that is attributable to the exchange rate uncertainty. c-1. How would you hedge thisexposure? c-2. If you hedge, what is the variance of the pound value of the hedged position?
Assume that you are an Omani investor and you have invested in Brazilian Government bonds which pays you fixed coupon rate. During your investment period, the Omani currency (OMR) has significantly appreciated against Brazilian currency (real). How would it impact your cash flows in Oman? 2. Assume that you are the CFO of Apple company which mainly sells its products (mobile phones and tablets etc.) in emerging markets. During the given year, the US dollar has significantly depreciated against the basket of emerging markets’ currencies. How would it affect the Apple’s income that is headquartered in the US? 3. How the situation in (ii) would affect the share price of Apple 4 . As the investment manager of the Oman investment fund, you wish to have a well-diversified international bond portfolio? What types of risks can be reduced by investing in such a portfolio?

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