a) When the December gold futures contract was trading at US$408 per 10 gram, expecting a fall in the price, Mr Joey Tuwai sells ten December gold futures contracts of 1 kg each in September. As expected, the gold prices fall with the December futures contracts trading at US$406 by October. Joey decides to close out the contract, and lock in his gain. Required: What is the amount of profit that Joey makes? Show your working. b) You manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 27%. The Treasury-bill rate is 7%. One of your clients chooses to invest 70% of a portfolio in your fund and 30% in a T-bill money market fund. Required: What is the expected value and standard deviation of the rate of return on your client’s portfolio?
a) When the December gold futures contract was trading at US$408 per 10 gram, expecting a fall in the price, Mr Joey Tuwai sells ten December gold futures contracts of 1 kg each in September. As expected, the gold prices fall with the December futures contracts trading at US$406 by October. Joey decides to close out the contract, and lock in his gain. Required: What is the amount of profit that Joey makes? Show your working. b) You manage a risky portfolio with an expected
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