Question

can i use vendor price (Bloomerg, IDC, PricingDirect, Reuters, S&P) in pricing the level 1 securities in the fair value hierarchy? what is the risk assessment?

Answer #1

Yes, one can use the prices of level 1 securities which are present over various vendor pricing index like Bloomberg ,or Reuters or pricingdirect or Standard and Poor, because they are representing the truest value which is determined by the twin factors of demand and supply in the market with an appropriate volume and with the motivation to trade those security in order to find the truest value.

There may be certain risk because market are not completely efficient and they may be subject to insider trading and manipulation of books of accounts in order to commit various fraud and in order to inflate the share price.

The current level of the S&P 500 is 3000. The dividend yield
on the S&P 500 is 2%. The risk-free interest rate is 3%. What
should be the fair price of a one-year maturity futures
contract?
- Now assume that the futures contract is also traded for 3000. Is
contract over or underpriced?
- Construct arbitrage portfolio for taking advantage of such
price deviation. (refer to Chapter 17 slides and our in class work
posted on Canvas)
- Discuss whether...

The spot price on the S&P 500 is $20,000 and the 1-year
futures price is $20,609.09. The
1-year risk-free rate is 3% per annum with continuous
compounding.
a. Draw the profit and payoff function for the long future.
(Provide labels for the axes
and label a point on the functions above, below and at the
futures price)
b. Note an S&P 500 futures contract is for 250 times the
S&P 500. Calculate what
the payoff and profit at expiration is...

Please use the following information on the portfolio and its
benchmark (S&P 500 index) to calculate
Portfolio
S&P 500
Average Annual Return
12%
10%
Standard Deviation
18%
15%
Beta
1.2
1
Risk-free rate =
2%
Sharpe ratio for the portfolio and S&P 500 index
Treynor ratio for the portfolio and S&P 500 index
Jensen’s alpha based on Capital Asset Pricing Model.

If the General Price level (p) in the U.S was 100 in comparison
to 85 (P) in Canada on June 30, 2015, what would be the real CAN/US
exchange rate? IF inflation takes place in Canada, causing its
general price level to rise to 120, what happens to the nominal and
real CAN/US exchange rates? If a Canadian tourist travels to the
United States on that day, which would offer the traveler greater
buying power? Use table 2.4 for nominal...

On January 1, you sell one April S&P 500 Index futures
contract at a futures price of 2,300. If the April futures price is
2,400 on February 1, your profit would be __________ if you close
your position. (The contract multiplier is 250.)
A)
$12,500 B) -$25,000 C) $25,000 D) -$12,500
The current level of the S&P 500 index is 2,350. The
dividend yield on the S&P 500 is 2%. The risk-free interest
rate is 5%with continuous compounding. The futures price quote for
a contract on...

The p-value is greater than the significance level.
(a) We can have a Type I error
(b) The absolute value of the test statistic is less than the
absolute value of the t critical value
(c) If we had used a larger value for alpha the p-value would
have been smaller
(d) We must have had a two tail test

(Derivatives & Risk Management - BOPM: Binomial
Options Pricing Model)
EVEN PARTIAL ANSWERS APPRECIATED if unable to provide an
entire answer
CONSIDER THE FOLLOWING STOCK
A stock is currently priced at $40. (S)
At the end of the month, it
will be either $42 (Su ) or $38
(Sd)
The risk-free rate is 8%
(r)
Price of a call option = 1.69 (f)
(i.e. expected value of payoff)
Delta = 0.75 and =
$28.50 in arb model
p = 0.5669 in...

10. Assume that the significance level is α=0.05. Use the given
statement and find the P-value and critical value(s).The test
statistic of z= −1.85 is obtained when testing the claim that
p=1/5.
P-values= ___
(Round to four decimal places as needed.)
The critical value(s) is/are z=_____
(Round to two decimal places as needed. Use a comma to separate
answers as needed.)
11. Assume that the significance level is α=0.01. Use the given
information to find the P-value and the critical...

You have gathered the following data, all of which is dated
March 29, 2018:
S&P 500 Index level: 2,640.87
S&P 500 forward earnings estimate: $160.15
S&P 500 P/E (forward): 16.49
S&P 500 P/B: 3.27
10-year T-Note yield: 2.74%
CPI inflation rate (year-over-year change): 2.40%
What is the earnings yield for the S&P 500? Based on the
predictions of the Fed Model, are U.S. equities undervalued or
overvalued? Why is this the case? To receive full credit, you must
show all...

QUESTION 27
On Jan. 1 Year 1, P spent 250 million to buy 100% of S. At that
date, some key numbers (in millions) are:
S
common
stock 15
S
paid-in
capital 20
S
retained earnings 80
Total
book equity = 115
All of the assets and liabilities of S had book values = fair
values, except:
Buildings had fair value 20 higher than book value. The
remaining life is 10 years.
Inventory had a fair value 10 lower than book value. The...

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