I need help with this please A stock market advisory service offers three investmentsportfolios for one of its customers. All portfolios have thesame investment cost. Portfolio U contains speculative stocks,which aim for capital gain through price appreciation. PortfolioV is madeup of stocks of stable companies that pay gooddividends overt the long run. Portfolio W comprises stockswith a moderate potential for growth and a moderate yield ofdividends.The customer has enough money to invest in only one of thesethree portfolios for a period of one year. The net return oninvestments will depend on whether the economy during theperiod will be in a stage of inflation, recession, ordepression. The net potential gains or losses (in thousands)are calculated follows:as ALTERNATIVESFiVLreason.Portfolio UPortfolio VPortfolioWRecession$25$ 47$50.3Inflation$75$ 70$ 80TES OF NATUREDepressionSTA$0$-5$-15.21. DMUU: What would be the decision accordingto: (1) Maximax (optimism); (2) Maximin (pessímísm); (3) Realism where Alpha - α = .7 (4) Equal Likelihood;and (5) Minimizing Regret? Be sure to show work, indicatethe recommended alternative each time, provide a summary.table_(see below), and support your final statement with aBe sure to show all work, indicate the recommended alternativeeach time, provide a summary table (see below),and support your final statement with a reason.

Find the given details below: Given details: Alternatives State of Nature Recession Inflation…

Answered: ALTERNA TIVES Fi VL reason. Portfolio U…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter11: Simulation Models

Section: Chapter Questions

Problem 52P

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In the financial world, there are many types of complex instruments called derivatives that derive their value from the value of an underlying asset. Consider the following simple derivative. A stocks current price is 80 per share. You purchase a derivative whose value to you becomes known a month from now. Specifically, let P be the price of the stock in a month. If P is between 75 and 85, the derivative is worth nothing to you. If P is less than 75, the derivative results in a loss of 100(75-P) dollars to you. (The factor of 100 is because many derivatives involve 100 shares.) If P is greater than 85, the derivative results in a gain of 100(P-85) dollars to you. Assume that the distribution of the change in the stock price from now to a month from now is normally distributed with mean 1 and standard deviation 8. Let EMV be the expected gain/loss from this derivative. It is a weighted average of all the possible losses and gains, weighted by their likelihoods. (Of course, any loss should be expressed as a negative number. For example, a loss of 1500 should be expressed as -1500.) Unfortunately, this is a difficult probability calculation, but EMV can be estimated by an @RISK simulation. Perform this simulation with at least 1000 iterations. What is your best estimate of EMV?
You are considering a 10-year investment project. At present, the expected cash flow each year is 10,000. Suppose, however, that each years cash flow is normally distributed with mean equal to last years actual cash flow and standard deviation 1000. For example, suppose that the actual cash flow in year 1 is 12,000. Then year 2 cash flow is normal with mean 12,000 and standard deviation 1000. Also, at the end of year 1, your best guess is that each later years expected cash flow will be 12,000. a. Estimate the mean and standard deviation of the NPV of this project. Assume that cash flows are discounted at a rate of 10% per year. b. Now assume that the project has an abandonment option. At the end of each year you can abandon the project for the value given in the file P11_60.xlsx. For example, suppose that year 1 cash flow is 4000. Then at the end of year 1, you expect cash flow for each remaining year to be 4000. This has an NPV of less than 62,000, so you should abandon the project and collect 62,000 at the end of year 1. Estimate the mean and standard deviation of the project with the abandonment option. How much would you pay for the abandonment option? (Hint: You can abandon a project at most once. So in year 5, for example, you abandon only if the sum of future expected NPVs is less than the year 5 abandonment value and the project has not yet been abandoned. Also, once you abandon the project, the actual cash flows for future years are zero. So in this case the future cash flows after abandonment should be zero in your model.)
The IRR is the discount rate r that makes a project have an NPV of 0. You can find IRR in Excel with the built-in IRR function, using the syntax =IRR(range of cash flows). However, it can be tricky. In fact, if the IRR is not near 10%, this function might not find an answer, and you would get an error message. Then you must try the syntax =IRR(range of cash flows, guess), where guess" is your best guess for the IRR. It is best to try a range of guesses (say, 90% to 100%). Find the IRR of the project described in Problem 34. 34. Consider a project with the following cash flows: year 1, 400; year 2, 200; year 3, 600; year 4, 900; year 5, 1000; year 6, 250; year 7, 230. Assume a discount rate of 15% per year. a. Find the projects NPV if cash flows occur at the ends of the respective years. b. Find the projects NPV if cash flows occur at the beginnings of the respective years. c. Find the projects NPV if cash flows occur at the middles of the respective years.
You currently own 600 shares of JKL, Inc. JKL is an all-equity firm that has 75,000 shares of stock outstanding at a market price of $40 a share. The company’s earnings before interest and taxes are $140,000. JKL has decided to issue $1 million of debt at 8 percent interest. This debt will be used to repurchase shares of stock. If the cost of equity is 25%, the WACC is 16% and cost of debt is 10%, what will be the implied D/E ratio?
Fred has been told that diversifying his investments will significantly reduce risk. He hastherefore invested in two stocks. His portfolio consists of a $1 500 000 investment in DrugsLimited and $750 000 invested in shares of Pharmaceuticals Limited.Economy Probability ReturnsDrugs Limited PharmaceuticalsLimitedBoom 0.4 12% 19%Normal 0.5 8% 11%Recession 0.1 2% -4% i. What is the expected return on Fred’s portfolio? ii. Advise Huron as to the effectiveness of his diversification strategy.
You are planning to save for retirement over the next 30 years.To do this, you will invest $800 a month in a stock account and $350 a month in abond account. The return of the stock account is expected to be 11 percent, and thebond account will pay 6 percent. When you retire, you will combine your money intoan account with an 8 percent return. How much can you withdraw each month fromyour account assuming a 25-year withdrawal period?
the price of a stock on July 1 is $30. A trader buys 100 call options on the stock with a strike price of $34 when the option price is $2. The options are exercised when the stock price is $40. The trader's net profit is ?
The Free Cash Flow model has the following advantage over the Dividend Growth model: In the case of variable growth, it does not require the calculation of any horizon value. It can be applied even if growth rates are unknown. It can be applied to companies with variable growth in the initial years that eventually settle down to a fixed rate of growth for the long term. It can be applied to divisions of companies. O It does not require any forecasting.
Which of the following statements is correct for the Black-Scholes model? A) The price of an American call written on a stock is: c = SN(d1)-Ke-rTN(d2) B) The stock price at a future point in time follows a log-normal distribution. C) The continuously compounded return on the stock follows a log-normal distribution. D) Black-Scholes prices may allow for arbitrage opportunities. Please explain and justify your choice.
2. An analyst determines the intrinsic value of a stock to be equal to 255 lei. If the stock's market price is 285 lei, the stock is most likely: a) overvalued b) undervalued c) fairly valued
The number of persons likely to die within a year, at each age, is calculated by actuaries on the basis of past experiences and made available as: a. Mortality tables b. Calculation tables c. Monetary tables d. Tariff tables For offering a group insurance scheme, we need a: a. Large group b. Heterogeneous large group c. Homogeneous large group d. Small group
Why is the RISKCORRMAT function necessary?How does @RISK generate random inputs by default,that is, when RISKCORRMAT is not used?

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