Question

In: Statistics and Probability

Chirag’s Chapo Challenge Chirag, one of the senior-most members of our club, has recently started getting...

Chirag’s Chapo Challenge

Chirag, one of the senior-most members of our club, has recently started getting his hands dirty with the markets. He decided to invest the prize money he got by winning the Auquan Quant challenge into a trading strategy. He invested INR 10,000 that would give him returns of 10% per annum. (strategy compounds money on a daily basis)

You, a young chap, highly motivated to pursue finance, went to him seeking guidance, so as to how to start learning Finance. Along with a gyaan session, comes an unsaid CHAPO, right! But, but CHAPO doesn’t come so easily, facche!.

So, Chirag gives you the money he wanted to invest in the market, and proposes you a deal!

You get a Chapo after the recruitment process of the club if you could make more money than the strategy he wanted to invest in. If you are successful in making more money than that strategy, the invested capital is all yours (i.e., Chapo of INR 10,000) and Chirag takes the return (money you made from the strategy) home. But, but. If your strategy gives return less than 10%, you return the money to Chirag, along with the return that you generated from your strategy and also owe the amount that you were not able to make. (Say if you created 4% return, you’d have to give INR 10400 plus the remaining 6% to Chirag from your pocket, and you don’t get a Chapo, of course!)

Assuming that you have been following the news for a while, you recall that banks in Argentina offer a 20% interest rate per annum (given: the bank also compounds money on a daily basis) on the money (in Peso, of course) deposited. (Woah, a bank giving more return than a sophisticated trading strategy used by Chirag!). So with this knowledge, you decided to keep that money in an Argentinian bank.

Impressed by your idea of investing in the foreign market, Chirag added on: “Take this information from me, you’ll need this. FX markets aren’t so easy as they look.”

Spot rate: 1.20 INR/ARS

Forward rate (spot rate after one year): 1.05 INR/ARS

He suggested “If you were to take my suggestion, keep the money in the bank for a year, don’t withdraw it before one year”

Chirag is witty and smart, inherently. The Chapo won’t come so easy!

This time he would have made some errors of judgment, and you could get a grand CHAPO. Maybe, or may not. Should you follow his suggestion? Justify your choice.

Suppose if you follow his suggestion, and get into the contract, calculate the money that Chirag would get/ or the money which you have to pay from the pocket, depending upon the returns from the contract. Justify your answer.

No matter how witty he is, we are sure he wouldn’t propose a deal that would make taking a Chapo impossible for you, we being confident about how kind-hearted he is!

So, you have the flexibility to invest the money in the Argentinian bank for the period you want (but not more than a year). The spot rate of INR/ARS follows this function:

Spot rate = 1.20 (t=0) Spot rate = 2e-0.01t (0<t<365)

Spot rate = 1.05 (t=365)

What is the best time/ time period at which you should withdraw the money from the bank so that you get the CHAPO.

Also, state the time duration for which you would refrain from entering into the deal.

Solutions

Expert Solution


Related Solutions

A chess club has 36 members. Members are categorized as Novice members, Regular members, and Master...
A chess club has 36 members. Members are categorized as Novice members, Regular members, and Master members. There are 8 Novice members, 21 Regular members, and 7 Master members in the club. For each part below, you must include a few words that describe your counting strategy. A number only as a response will not receive full credit. (a) How many committees of size 5 can be chosen if the committee must have 1 Novice, 2 Regular, and 2 Master...
This week we will be getting started on our final essay (due at the end of...
This week we will be getting started on our final essay (due at the end of Week 14). Chose one sociological issue, idea, or problem surrounding race, gender, and social class. You can look through our book for ideas. Examples of sociological issues or problems can be: 1) Sexism in the workplace 2) Misrepresentation of gender in the media 3) Racial discrimination in the workplace 4) Racial and Ethnic Stereotypes in the Media 5) Racial Profiling 6) Poverty 7) Homelessness...
1) A club is choosing 2 members to serve on a committee. The club has nominated...
1) A club is choosing 2 members to serve on a committee. The club has nominated 2 women and 2 men. Based on chance alone, what is the probability that one woman and one man will be chosen to be on the committee? rounded to 4 decimal places 2) A club is choosing 2 members to serve on a committee. The club has nominated 2 women and 2 men. Based on chance alone, what is the probability no women are...
A student club has 65 members; of these members, 28 are male and22 are freshmen....
A student club has 65 members; of these members, 28 are male and 22 are freshmen. Of the males, 10 are also freshmen.What is the probability that a randomly selected student in the club is a freshman?  What is the probability that a randomly selected student in the club is a male or a freshman?  What is the probability that a randomly selected student in the club is male given that the student is a freshman?  What is the probability that a randomly...
A student club has 65 members; of these members, 28 are male and 22 are freshmen....
A student club has 65 members; of these members, 28 are male and 22 are freshmen. Of the males, 10 are also freshmen. Answer the questions below as a fraction in the form numerator/denominator. Hint: it may be useful to create your own cross tabulation table. What is the probability that a randomly selected student in the club is a freshman? What is the probability that a randomly selected student in the club is a male or a freshman? What...
The Club has 9 members. The club needs to elect a President, Vice President, Secretary and...
The Club has 9 members. The club needs to elect a President, Vice President, Secretary and Treasurer, how many different ways are possible? How many ways are there to find a committee of size three. The Club has 10 members, 3 freshman, 4 sophomores and 3 juniors. How many ways are there to find a committee of size three with no freshmen? How many ways are there to find a committee of size three with one freshmen?
A club with 23 members is voting on a proposal. A group of 5 has decided...
A club with 23 members is voting on a proposal. A group of 5 has decided to vote in favor of the proposal while each of the rest of the members vote independently with a chance of 44% in favor of the proposal. What are the chances that the proposal will get the majority vote.
The book club of the month has determined that a quarter of its members purchase the...
The book club of the month has determined that a quarter of its members purchase the line offered as a monthly selection. if a random sample of 300 members is selected, what is the probability that: a) more than 0.18 of the members will buy the selected book b) less than 0.28 of the members will buy the selected book c) within which limits of the population proportion will be found 99% of the sample proportions d) if the club...
A country club has a membership of 500 members and operates facilities that include a swimming...
A country club has a membership of 500 members and operates facilities that include a swimming pool and a gymnasium. The club president would like to know how many members regularly use the facilities. A survey of the members indicates that 70% regularly use the swimming pool (S), 50% regularly use the gymnasium (G), and 5% use neither of these facilities regularly. Calculate the probability of the club members who use the facilities of the swimming pool and gymnasium P(S∩G).           ...
A club has 50 members of which 20 are freshmen, 15 are sophomores, 10 are juniors...
A club has 50 members of which 20 are freshmen, 15 are sophomores, 10 are juniors and 5 are seniors. a) How many ways are there to select a president, a senior vice president, and a vice president if they can not be from the same class? b) How many ways are there to select one president, and two vice presidents if they can not be from the same class?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT