10 Nov The role of VaR in Enterprise Risk Management: (No
The role of VaR in Enterprise Risk Management: (Note: There is an excel template that should be used for this case study in questions 2-3 and please use word for the answer to question #4.)Mr. Young is the CFO of a $49 million revenue logistics company and has excess cash funds to invest into a specific stock. Based upon his research, he has found that Tesla maybe an opportunity to invest excess cash that has built up over the past year from record profits. Tesla, as Mr. Young feels, is on the cutting edge of electric automobiles to the masses, has a current stock beta of .97 (which means that the risk is low as it is below a threshold of 1.00), and overall high growth potential. However, he wishes to use the VaR calculation to quantify the upside and downside risk to the company to help him recognize if Tesla stock is a good choice. Please see below for the assignment parameters.Please visit the link below to gain a greater grasp of VaR and its application to risk. http://www.investopedia.com/articles/04/092904.asp?lgl=rira-baseline-verticalAlso, see: http://investexcel.net/value-at-risk-methods-spreadsheets/Next, use Yahoo Finance to gain Tesla (TSLA ticker symbol) monthly closing stock price from 6-1-2013 to 6-1-2018. Download the information into excel. (There should be 60 data rows) Then cut and paste the date and stock close columns of data into the attached excel template. Once this is completed, the template will automatically calculate the dollar and percentage changes in monthly stock prices and graph the data accordingly.Using a VaR variance/covariance method tab in the excel template worksheet, calculate the value at risk with the following parameters for Mr. White inclusive of the following assumptions:Portfolio Value: $143,500Average return 8.5%Standard deviation 10%Confidence level 95%Based upon the findings of #2 and #3, please use Word to answer what your findings of Tesla VaR benchmarks and what do they mean, what are the advantages and disadvantages of using VaR? Further, please explain what you would advise Mr. Young to do in terms of his choice of Tesla’s investment for the company and what he should explain to the CEO as to possible risk impact on the company.
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