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A hedge fund borrows cash for one month and uses 1,000 shares of Accor Ltd. as collaterals. The stock trades at $200 in Euronext at
A hedge fund borrows cash for one month and uses 1,000 shares of Accor Ltd. as collaterals. The stock trades at $200 in Euronext at the beginning of the month. The repo rate is 2% per month. Given the volatility of the stock, the cash lender applies a haircut of 30%. Assume the hedge fund then uses all the borrowed cash to invest in a financial instrument that perfectly tracks Hang Seng Index (HSI) performance.
After one month, HSI realizes a loss of 20%. Shares of Accor Ltd. drops by 10% over the month, $5 dividends are distributed for each share so that the cash lender has to return all shares of the stock together with all dividends distributed to the hedge fund when the agreement expires. At the end of one month, the hedge fund closes all the positions including the investment in financial instrument and selling all shares returned. Please calculate the return in dollar amount of this hedge fund assuming that the financial instrument and shares can be always sold at market value.
After one month, HSI realizes a loss of 20%. Shares of Accor Ltd. drops by 10% over the month, $5 dividends are distributed for each share so that the cash lender has to return all shares of the stock together with all dividends distributed to the hedge fund when the agreement expires. At the end of one month, the hedge fund closes all the positions including the investment in financial instrument and selling all shares returned. Please calculate the return in dollar amount of this hedge fund assuming that the financial instrument and shares can be always sold at market value.
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