Question
Questions 21 and 22 use the following data: Sell-IT is an on-line retail business and a subsidiary of Trade Corp. Its computer systems have suffered
Questions 21 and 22 use the following data:
Sell-IT is an on-line retail business and a subsidiary of Trade Corp. Its computer systems have suffered a number of significant recent failures. The CFO assesses that the impact of future such events is forecast to result in a reduction in value of $18,000 over a full year and that the statistical patterns of the potential volatility, measured as the standard deviation of the firms value, could be $900,000 per annum. The projected annual profit of Sell-IT, paid to Trade Corp at the end of the year as a dividend, is $136,250. Trade Corps cost of funds is 5.5%pa.
Question 21
What is the Annual Value at Risk (VaR; rounded to the nearest $), if the company uses a 95% confidence level based on a normal distribution?
Select one:
a. 1.050,000
b. 1,202,500
c. 1,485,000
d. 1,780,500
e. 2,097,000
Question 22
What is Trade Corps Risk-Adjusted Return on Capital (RAROC; rounded to 1 decimal place) on its investment in Sell-IT, using the VaR that you calculated in Q21?
Select one:
a. 5.6%pa
b. 6.7%pa
c. 7.9%pa
d. 8.4%pa
e. 9.1%pa
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started