A risk manager uses a futures contract, which has a correlation of 0.88 with the spot asset, to hedge her exposure. She calculates a hedge ratio of 0.9429. What part of the cash flow remains unhedged? O None of these O 5.71% O77.44% O 22.56%

A risk manager uses a futures contract, which has a correlation of 0.88 with the spot asset, to hedge her exposure. She calculates a hedge ratio of 0.9429. What part of the cash flow remains unhedged? O None of these O 5.71% O77.44% O 22.56%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Consider the following information (Assume that Security M and Security N are in the same financial market and the market is efficient): Standard Deviation BetaSecurity M 20% 1.25Security N 30% 0.80 Which security has more systematic risk? Group of answer choices Security M Security N Equal
The market risk premium (E[Rm]-Rf) is 6%. The risk-free rate (Rf ) is 2%. Asset X has beta equal to 0.8 and expected return equal to 7%. Asset Y has beta equal to 1 and expected return equal to 7.5%. What level of abnormal return can be expected from a 1:1 long-short portfolio of X and Y? a. 0.7% b. 0.6% c. 0.5% d. 0.4% e. None of the above
Consider the following table, which gives a security analyst's expected return on two stacks and the market i Aggressive Defensive Scenario Probability Market Return Stack Stock 1 0.5 0.5 2.6% 4.4% 16 27 Required: a. What are the belas of the two storks? (Round your answers to 2 decimal places.) Beta A Beta D b. What is the expected rate of return on each stack? (Round your answers to 2 decimal places.) Rate of return on A Rata of return on D % %
Suppose you observe the following situation: Security Pete Corporation Repete Company Beta 1.25 .87 Expected Return 1080 .0820 a. Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the risk-free rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Expected return on market using Pete Corporation a. Expected return on market using Repete Company b. Risk-free rate de de % % %
Assume that the following two assets are priced according to the zero-beta security market line: asset 1 has expected return of 6% and beta 0.5; asset 2 has expected return 14% and beta 2. (i) A third asset is mispriced by the market: it has beta 1.5 and expected return of 8%. Explain how you can set up a portfolio to exploit the arbitrage opportunity. What is the expected return of such portfolio? [33%] (ii) A fourth asset is mispriced by the market: it has beta 1.2 and expected return of 18%. Explain how you can set up a portfolio to exploit the arbitrage opportunity. What is the expected return of such portfolio? [33%] (iii) What should be the expected return for an asset with beta 0.8?
The following expected return and the standard deviation of current returns are known: Security (i) Expected Return Standard Deviation βi A 0.20 0.12 1.1 B 0.12 0.10 0.8 T-Bills 0.05 0 0 Market Portfolio 0.20 0.15 1 Required: Determine which of A or B is over-valued or undervalued.
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how to find the current market price of your market portfolio according to No Arbitrage condition? With weights (-0.6906057,1.21794211, 047266359) and expected returns (0.31%,2.1859%,1.4475%), where 0.31% is the risk free rate
Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found to be halfof the required return (RB) on stock B. The risk-free rate (Rf) is one-fourthof the required return on A. Return on market portfolio is denoted by RM. Find the ratioof betaof A(A) tobeta of B(B). Thank you for your help.
Suppose you observe the following situation: Security Beta Expected Return Pete Corp. 1.70 0.180 Repete Co. 1.39 0.153 What is the risk - free rate? (Do not round intermediate calculations. Round the final answer to 3 decimal places.) Risk - free rate % Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? (Do not round intermediate calculations. Round the final answers to 2 decimal places.) Expected Return on Market Pete Corp. % Repete Co. %
The CAPM states that the expected (required) return on an asset is : E(Ri)=Rf+βi[E(RM)−Rf] where the term in square brackets is the risk-premium earned by the market portfolio. Therefore, the beta of the market portfolio (βM) must be equal to __________ . A) zero B) 0.5 C) 1.0 D) an unknown estimate
A single mispriced asset has an alpha a = 3.0%, a beta ẞ = 1, and unsystematic risk σ² = 9%. The market risk premium is 5.0% and the market's standard deviation is 0.1. What is the information ratio of the mispriced asset? In constructing an optimal allocation between this mispriced asset and the market portfolio, what proportion of your investment would you place in the mispriced asset? Oa. 0.1; 6.67% O b. 0.33; 6.67% O c. 0.33; 6.90% O d. 0.1; 66.67% O e. 0.1; 6.90%

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