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Math Help - Can anyone help with my investment banking past paper

  1. #1
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    ection A

    1. a) You are buying a share at 10 and for three years the company pays a dividend of 0.5 per year and the stock itself is valued at 12 three years later. What is the annualised rate of return of this share? (15 Marks)


    b) Listed below are
    estimated covariance matrix for three stocks:

    A B C
    A 625 - 244 118
    B -244 336 225
    C 118 225 184

    i) Find the correlation coefficient matrix of returns on the securities. (15 Marks)

    ii) Find the risk of a portfolio consisting of 30% of A, 60% of B and 10% of C.
    (15 Marks)


    part 2

    6. a) Assume that the current price of ABC share is 50 pounds. The size of one call option is 100 shares. Assuming you short 100 ABC shares and buy 1 European call option on ABC company shares. The call option expires 1 month later and the strike price is 45 per share. The premium is 5 per share.

    Calculate your profit and loss in the following cases at the expiration date:

    1) ABC share price is 40 pre share
    2) ABC share price is 45 pre share
    3) ABC share price is 51 pre shre

    Thanks guys
    Last edited by mr fantastic; January 17th 2010 at 12:43 PM.
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  2. #2
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    Were you planning to show any of your work or explain why you want someone else to do your exams for you?

    I the ARoR is "i", then define v = 1/(1+i)

    Then 10 = 0.5(v + v^2 + v^2) + 12v^3

    Solve for i.

    If you are struggling with thisone, there is not much point in trying the other two. Good luck, though.
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  3. #3
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    Quote Originally Posted by TKHunny View Post
    Were you planning to show any of your work or explain why you want someone else to do your exams for you?

    I the ARoR is "i", then define v = 1/(1+i)

    Then 10 = 0.5(v + v^2 + v^2) + 12v^3

    Solve for i.

    If you are struggling with thisone, there is not much point in trying the other two. Good luck, though.
    thanks no this is a past paper, which im goinbg over

    its just the maths ones i am having trouble with

    the research questions im ok with

    thanks again
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  4. #4
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    I the ARoR is "i", then define v = 1/(1+i)

    Then 10 = 0.5(v + v^2 + v^2) + 12v^3

    10 = 1/2(2V^2+V)+ 12V^3

    10 = V + V^2+ 12V^3

    12V^3 + V^2 + V - 10 = 0

    Using V = 1/(1+i)

    12(1/(1+i))^3+ (1/(1+i)^2+ 1/(1+i) - 10

    12/(1+i)^3 + (1+i)^2 + 1/(1+i) -10 = 0

    lovly equation i;lll solve this one offline
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  5. #5
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    Quote Originally Posted by generalrommel View Post
    10 = 0.5(v + v^2 + v^2) + 12v^3

    10 = 1/2(2V^2+V)+ 12V^3

    10 = V + V^2+ 12V^3
    NO. That last equation should be:
    20 = V + 2V^2 + 24V^3

    When doing algebra, try NOT to switch from small to large (like v to V);
    it'll only give you headaches!
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  6. #6
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    And really, solve for v. "i" is a piece of cake after that.
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