b) A superfund manager currently manages a diversified Australian shares portfolio wit a value of $300 million. The manager decides to use the ASX SPI 200 index futures t hedge a forecasted decline in share prices. As an analyst in the team, you hav calculated that the share portfolio requires 2100 futures contract to manage the ris exposure. Assuming S&P/ASX 200 index is currently at $5,500 and one index point i $25. (i) Explain to your manager the action your team should take in future contracts and the total value of futures contracts (ii) In three months' time, the manager decides to close out the hedging position. Assuming the S&PIASX 200 index is at $5,150 at that time. Explain bow vou will close out the onen position and show the pet

b) A superfund manager currently manages a diversified Australian shares portfolio wit a value of $300 million. The manager decides to use the ASX SPI 200 index futures t hedge a forecasted decline in share prices. As an analyst in the team, you hav calculated that the share portfolio requires 2100 futures contract to manage the ris exposure. Assuming S&P/ASX 200 index is currently at $5,500 and one index point i $25. (i) Explain to your manager the action your team should take in future contracts and the total value of futures contracts (ii) In three months' time, the manager decides to close out the hedging position. Assuming the S&PIASX 200 index is at $5,150 at that time. Explain bow vou will close out the onen position and show the pet

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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(CAPM Set-up for Questions 15 to 20] Your current portfollo consists of three assets, the common stock of Citi group (c) and Kellogg Co. (k) combined with an investment in the risk free asset. You know the following about the stocks (p_ij denotes the correlation between asset i and j, oi denotes the standard deviation of asset i, and m denotes the market portfolio): p_cm 0.3, p_k.m = 0.4 O.C = 0.8, o_k 0.5 You also have the following information about the market portfolio, and the risk free asset.f: Elr_m) - 0.13, rf 0.04 am 0.2. Assume that Individuals can borrow and lend at riskfree rater_f and that the Capital Asset Pricing Models (CAPM) describes expected returns on assets. You have $200,000 Invested in Citi group, $200,000 invested In Kellogg, and $100,000 invested in the riskless asset. Call this portfolo X.
Delta hedging. You own $35,000 shares of Saturn Ltd. common stock that is currently selling for $52. A call option on Saturn with a strike price of $52 is selling at $4.30 and has a delta of 0.54. a. Determine the number of call option contracts necessary to create a delta-neutral hedge (with sign!). Number contracts. Round your answer to closest integer. b. Calculate the total change in portfolio value for a $0.31 decrease in the price of Saturn stock, keeping in mind that you can only trade option contracts, not the individual options. $ Number Round your answer to the nearest cent.
Quality Investments has a $25 million portfolio with a beta of 1.4. The firm employs the E-mini Nasdaq-100 futures contract which has price of 11,866 and one contract is on $20 times the Nasdaq-100 index. How many contracts are necessary to reduce the beta to 0.8 (round your answer to the nearest whole number)?
An investor holds a diversified portfolio consisting of a P2,100 investment in each of 10 different common stocks. The portfolio beta is equal to 1.5. You have decided to sell one of your stocks, whose beta is equal to 1, for P2,100 and used the proceeds to buy different P2,100 of stock of a retail company whose beta is 1.2. What will be the new beta of the portfolio? (No rounding off until the final answer)
Below are two alternative strategies under consideration by an investment fi rm:Strategy A : Invest in stocks that are components of a global equity index, have aROE above the median ROE of all stocks in the index, and have a P/E less thanthe median P/E.Strategy B : Invest in stocks that are components of a broad-based US equity index,have a ratio of price to operating cash fl ow in the lowest quartile of companies inthe index, and have shown increases in sales for at least the past three years.Both strategies were developed with the use of back-testing.1 . How would you characterize the two strategies?2 . What concerns might you have about using such strategies?
A speculator can choose between (i) buying 108 shares of a stock for $50.58 per share, and (ii) buying 1080 European call options on that stock with a strike price of $42 for $3.99 per option. At maturity, what is the stock price that would make the two alternatives equally profitable? a. 1.58 O b. 42.81 O c. 47.57 d. 45.96 e. 14.18
Reconsider the determination of the hedge ratio in the two-state model where we showed that one-third share of stock would hedge one option. The possible end-of-year stock prices, us $135 (up state) and dSo = $115 (down state). Required: = a. What would be the call option hedge ratio for each of the following exercise prices: $135, $127, $120, $115, given the possible end- of-year stock prices, us $135 (up state) and dSo $115 (down state)? = = b. What do you conclude about the hedge ratio as the option becomes progressively more in the money? × Answer is not complete. Complete this question by entering your answers in the tabs below. Required A Required B What would be the call option hedge ratio for each of the following exercise prices: $135, $127, $120, $115, given the possible end-of-year stock prices, uso = $135 (up state) and dS = $115 (down state)? Note: Round your answers to 3 decimal places. Exercise Hedge Ratio Price $ 135 0.500 127 0.500 × 120 0.500 × $ 115 0.500 ×
A pension fund currently has $50 million in the S&P 500 index and $50 million in Treasury bills (risk-free asset). The current 6-month S&P 500 futures price is 1390.5, and one contract is on $250 times the index. a) Suppose that the manager is concerned about the performance of the index over the next 6 months. Explain what position in the S&P 500 futures he should take to eliminate all exposure to the market over the next six months. b) If the manager decides to switch to a portfolio that invests 30% in the index and 70% in T-bills for a period of 6 months, explain how he could achieve that using S&P 500 futures.
Please answer fast i give upvote
What is the required rate of return of the portfolio held by Bulldogs Inc. if the nominal rate of the short-term government issued security is 2.25% and the overall market risk premium is 3.50%? a. 2.50% b. 7.50% c. 6.50% d. 1.50%
The following three defense stocks are to be combined into a stock index in January 2022 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance). Assume the index is scaled by a factor of 10 million; that is, if the total value of all firms in the market is $5 billion, the index would be quoted as 500. Douglas McDonnell Dynamics General International Rockwell Shares (millions) 215 455 1/1/22 $ 64 Price 1/1/23 1/1/24 72 . $ 68 64 $ 82 78 250 101 90 106 a. Calculate the initial value of the index if a value-weighting scheme is used. Note: Round your answer to 2 decimal places. Index value 49,045.00 b. What is the rate of return on this index for the year ending December 31, 2022? For the year ending December 31, 2023? Note: A negative valué should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. 2022 return 2023 return
Give typing answer with explanation and conclusion The shares of ABC Ltd are currently selling at Shs.290 each at the stock exchange. The exercise price for a 6months call option is Shs260.The prevailing risk free rate is 12%.The variance of ABC ltd share price has been 15%. Required -Determine the value of such an option using Black & Scholes option valuation.

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