Calculate the return in dollar amount of this hedge fund

Assignment Help Finance Basics

Reference no: EM133251619

Question - 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.

Reference no: EM133251619

Questions Cloud

What message was the cartoonist trying to communicate : Deserting the Old Idol - Dalrymple What is the tone? What message was the cartoonist trying to communicate with his representation

Calculate the maximum profit the company can make : Formulate a linear programming model for this problem and solve the model by using Excel and POM-QM. Calculate the maximum profit the company can make

Why did kirkman suppose that americans commonly : Why did Kirkman suppose that Americans commonly believed "[railway] carriers lose no opportunity to oppress the public"? Why did he believe that "governments

Artificial associations of labor seeking : How does Kirkman's fear of "artificial associations of labor seeking (through combinations) to coerce the employer" compare with his confidence in the armylike

Calculate the return in dollar amount of this hedge fund : 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

How do the signs and symptoms of chest pain : How do the signs and symptoms of chest pain, nausea, dyspnoea, and diaphoresis reflect the underlying pathophysiology.

How does indentured servitude eventually get phased out : How does indentured servitude eventually get phased out towards 1700 by the institution of African slavery? What are the economic and demographic dynamics

What causes the markedly distended abdomen : What causes the markedly distended abdomen? Please relate your answer to the pressures involved with bulk flow at the capillaries.

What is the three-year forward price : The asset provides an income of $4.0 at the end of the first year and at the end of the third year. What is the three-year forward price

User Account

All Pages