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Excel spreadsheet for students.

An equity analyst at Nova Funds, an investment firm, is in the process of analyzing an investment in SIGA Technologies (SIGA), and potentially its competitor, PharmAthene Inc. (PIP). SIGA is currently the only company in the world that has developed a treatment for smallpox, with its ST-246. In late 2010, the U.S. Department of Health and Human Services (HHS) announced the intention to award SIGA a contract valued at up to $2.8 billion, which significantly exceeds SIGA’s current market value, making the company potentially an excellent investment. However, SIGA is prevented from realizing the profit on this contract due to two uncertainties. First, PIP, a partner throughout the development of the ST-246, has sued SIGA over the rights of the ST-246, with the payout of the lawsuit unknown. Second, since the HHS announcement is for the intention to award the contract, the actual contract for SIGA may take on various possibilities. Given these uncertainties, the equity analyst needs to find ways to invest in the situations that produce the most attractive outcome. She may potentially invest by buying or shorting the stocks of the companies involved or through the use of options. Moreover, she may do this over multiple timeframes, if that is justified.

The chief credit officer (CCO) at Seoul National Bank has recently faced numerous defaults on its corporate loans. To address this problem, the CCO must re-evaluate how the bank responds to defaults and determine a default strategy. The CCO must evaluate the payouts and risk profiles of 1) collecting on collateral, 2) partially settling, and 3) waiting and seeing. Further, the CCO must determine a systematic way to approve loans from companies. Analyzing both qualitative and quantities factors, the CCO must determine which companies to approve for loans given a certain size of its loan portfolio. Also, the CCO must determine whether or not to increase or shrink the size of the bank’s loan portfolio based on the expected outcomes and/or simulated results.

Excel spreadsheet for instructors.

Excel spreadsheet for instructors.