Show all work to receive full credit Year GoopGip Stock LoopLip Stock S&P; 500 2
ID: 2691963 • Letter: S
Question
Show all work to receive full credit Year GoopGip Stock LoopLip Stock S&P; 500 2007 -12.8% 4.85% -1.87% 2008 -4.5% -8.25% 2.39% 2009 5.9% 3.33% 0.45% 2010 1.9% 7.21% 3.56% 2011 -4.8% -1.55% -1.38% The Z-statistic at the 90% confidence level is 1.2816 The Z-statistic at the 95% confidence level is 1.6449 The Z-statistic at the 99% confidence level is 2.3263 1. What are the mean, standard deviation, and beta for GoopGip stock? 2. What are the mean, standard deviation, and beta for LoopLip Stock 3. What are the mean and standard deviation for S&P; 500? 4. What is the maximum expected loss for GoopGip stock at the 99% confidence level using standard deviation? . What is the maximum expected loss for S&P; at the 95% confidence level using standard deviation? 6. What is the maximum expected loss for stock GoopGip stock at the 95% confidence level using beta? 7. What is the maximum dollar loss if you invest $5,000,000 in GoopGip stock using beta?Explanation / Answer
=== Beta - Beta is a measure of the stock's risk compared to the overall market. It is a measure of volatility, or systematic risk, of a stock or portfolio compared to the overall market. A stock with beta 1 represents a stock will move equal to the market. A stock with a beta of, for example, 1.2 will theoretically be 20 percent more volatile than the market. Stocks with betas over 1 tend to carry more risk, but also have higher rates of return. ===
=== Standard Deviation - This is a measure of the difference between data and its mean. It is also a measure of a security's volatility. Standard deviation represents historical volatility which helps determine the amount of expected volatility. ===
=== The Basic Difference - Beta measures volatility based on a security's correlation with the market as a whole, whereas standard deviation determines volatility based on its historical pattern. ===
In recent years, several methodologies for measuring portfolio credit risk have been introduced that demonstrate the benefits of using internal models to measure credit risk in the loan book. These models measure economic credit capital and are specifically designed to capture portfolio effects and account for obligor default correlations. An example of an integrated market and credit risk model that overcomes this limitation is given in Iscoe et al. [1999], which is equally applicable to commercial and retail credit portfolios. However, the measurement of portfolio credit risk in retail loan portfolios has received much less attention than the commercial credit markets. This article proposes a methodology for measuring the credit risk of a retail portfolio, based on the general portfolio credit risk framework of Iscoe et al. The authors discuss the practical estimation and implementation of the model. They demonstrate its applicability with a case study based on the credit card portfolio of a North American financial institution. They also analyze the sensitivity of the results to various assumptions.