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Thisexcrckeis correlation coefficiont between corn and soybeans is +0.2, meaning that the D/E=0.67 ($1 milion in assets split as $400K in debt and 5600K
Thisexcrckeis correlation coefficiont between corn and soybeans is +0.2, meaning that the " D/E=0.67 (\$1 milion in assets split as $400K in debt and 5600K in equity) The total number of scenarios is 22=4, The expected ROA is 10x in all scenarios, meaning that the expected cash return is 10%$1 million =$100.000 per y ear. Assume the debt is financed toy a 10-year constant payment amortized loar at a 7% interest rate, with one payment annually at the end of the year, The fam has no other debts. 1. Caiculate the annial debt payment (principal + interest) for the fwo possible leverage ratios. This is the required annual cach flow. 2. Calculate the standard deviation for the two portfolios (you shoud be able to do this using your answers to Exercise 27h. 3. Assuming that the cash return is nombally distributed, find the orobebuisty that the cash return is less thas the required annua cash flow for the four scenarios: This is a group exercise: Thisexcrckeis correlation coefficiont between corn and soybeans is +0.2, meaning that the " D/E=0.67 (\$1 milion in assets split as $400K in debt and 5600K in equity) The total number of scenarios is 22=4, The expected ROA is 10x in all scenarios, meaning that the expected cash return is 10%$1 million =$100.000 per y ear. Assume the debt is financed toy a 10-year constant payment amortized loar at a 7% interest rate, with one payment annually at the end of the year, The fam has no other debts. 1. Caiculate the annial debt payment (principal + interest) for the fwo possible leverage ratios. This is the required annual cach flow. 2. Calculate the standard deviation for the two portfolios (you shoud be able to do this using your answers to Exercise 27h. 3. Assuming that the cash return is nombally distributed, find the orobebuisty that the cash return is less thas the required annua cash flow for the four scenarios: This is a group exercise
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