(c) You have been assigned to implement a three-month hedge for a stock mutual fund portfolio that primarily invests in medium-sized companies. The mutual fund has a beta of 1.15 measured relative to the S&P Midcap 400, and the net asset value of the fund is $175 million. Should you be long or short in the Midcap 400 futures contracts? Assuming the Midcap 400 Index is at 1,450 and its futures contract size is 500 times the index, determine the appropriate number of contracts to use in designing your cross-hedge strategy.

(c) You have been assigned to implement a three-month hedge for a stock mutual fund portfolio that primarily invests in medium-sized companies. The mutual fund has a beta of 1.15 measured relative to the S&P Midcap 400, and the net asset value of the fund is $175 million. Should you be long or short in the Midcap 400 futures contracts? Assuming the Midcap 400 Index is at 1,450 and its futures contract size is 500 times the index, determine the appropriate number of contracts to use in designing your cross-hedge strategy.

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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An investor buys Go-Go Mutual Fund on January 1 at a net asset value of GHS21.20. At the end of the year, the price is GHS25.40. Also, the investor receives GHS0.50 in dividends and GHS0.35 in capital gains distributions. What is the total percent return on the beginning net asset value?
A mutual fund manager expects her portfolio to earn a rate of return of 11% this year. The beta of her portfolio is 0.9. The rate of return available on risk-free assets is 4% and you expect the rate of return on the market portfolio to be 14%. a. What expected rate of return would you demand before you would be willing to invest in this mutual fund? Note: Do not round intermediate calculations. Enter your answer as a whole percent. b. Is this fund attractive to you? a. "Expected rate of return b. Is this fund attractive to you? %
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The following is part of the computer output from a regression of monthly returns on Waterworks stock against the S&P 500 Index. A hedge fund manager believes that Waterworks is underpriced, with an alpha of 2% over the coming month. Beta 0.75 R-square 0.65 Required: a-1. If he holds a $8.0 million portfolio of Waterworks stock and wishes to hedge market exposure for the next month using one-month maturity S&P 500 futures contracts, how many contracts should he enter? The S&P 500 currently is at 2,000 and the contract multiplier is $50. Number of contracts Standard Deviation of Residuals 0.07 (1.e., 7% monthly) a-2. Should he buy or sell contracts? O Buy Sell Probability b. Assuming that monthly returns are approximately normally distributed, what is the probability that this market-neutral strategy will lose money over the next month? Assume the risk-free rate is 0.7% per month. (Do not round intermediate calculations. Round your percentage answer to 2 decimal places.) %
Suppose that today is December 31, 2021. Consider a hedge fund with the following investment strategy: buy high quality stocks and short-sell low quality ("junk") stocks. The hedge fund follows a beta- neutral strategy. The estimated betas of high and low quality stocks over the 01/2019 to 12/2021 time period are 1.01 and 1.32 respectively. If the hedge fund's gross leverage is capped at 2, then how much should the fund invest in high quality stocks? To answer this question, compute the weighted invested in high-quality stocks at the end of 12/2021. (Hint: the sign matters) The answer should be given in decimal form with three decimals. For example, write 0.105 instead of 10.5 or 10.5 % when the correct answer is 10.5 %.
I need all answer
Assume that an investor holds the following portfolio: short stock bought at a price 90$, long one 3- month maturity call option on the same stock with an exercise price of $88. a) Show the payoff structure of this portfolio at option expiration both numerically and graphically. b) Calculate the profit/loss on this position if stocks are selling at $80 on the option maturity date. Calculate the profit/loss on the position if the stocks are selling at $110. Call option premium is $5, while put option premium is $3. Ignore the transaction costs. c) Explain what kind of "bet" the investor is making. What must the investor in such a portfolio believe about the stock price to justify this position?
Please explain using Excel and show/explain formulas. Percival Hygiene has $10 million invested in long-term corporate bonds. This bond portfolio’s expected annual rate of return is 8%, and the annual standard deviation is 10%. Amanda Reckonwith, Percival’s financial adviser, recommends that Percival consider investing in an index fund that closely tracks the Standard & Poor’s 500 index. The index has an expected return of 13%, and its standard deviation is 14%. a. Suppose Percival puts all his money in a combination of the index fund and Treasury bills. Can he thereby improve his expected rate of return without changing the risk of his portfolio? The Treasury bill yield is 3%. multiple choice Yes No b. Could Percival do even better by investing equal amounts in the corporate bond portfolio and the index fund? The correlation between the bond portfolio and the index fund is +0.3. multiple choice Yes No
The Closed Fund is a closed-end investment company with a portfolio currently worth $245 million. It has liabilities of $12 million and 17 million shares outstanding. a. What is the NAV of the fund? (Round your answer to 2 decimal places.) b. If the fund sells for $10 per share, what is its premium or discount as a percent of net asset value? (Input the amount as a positive value. Round your answer to 2 decimal places.)
A fund manager expects to have funds to invest in three months' time and plans to buy $4 million corporate bonds, currently yielding 7.00% p.a. The manager hedges their interest rate risk using three-year Treasury bond futures contracts, currently priced at 94.500. In three months time the fund manager buys $4 million corporate bonds at yield of 6.84% p.a. and closes out their futures market position at 95.250. What is the profit from closing out the futures position.
MLC Fund Management is considering the following three (3) options for their new investment portfolio: Option 1 - A non-callable corporate bond that pays a coupon rate of 8% annually. The bond will mature in 30 years. The yield-to-maturity (YTM) of the bond is 7.5% and the face value of the bond is $1 000. Option 2 - An ordinary share which just paid a dividend of $6.00 with a constant dividend growth rate of 5% each year. The current market price of this share is $85. Option 3 - A $100 par value preference-share which pays a fixed dividend of 6%. The required rate of return for the preference shares with the same risk is 8%. Required: a) How much should MLC pay for the corporate bond that pays the coupon annually? If the coupon is paid quarterly, what is the new bond value? b) Calculate the market required rate of return for the ordinary share. c) Compute the value of the preference share. d) Explain why a preference share is considered a hybrid between an equity and a debt…
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