Suppose that the relationship between the rate of return on IBM stock, the market index, and a computer industry index can be described by the following regression equation: rIBM =.5rM + .75rindustry. If a futures contract on the computer industry is traded, how would you hedge the exposure to the systematic and industry factors affecting the performance of IBM stock? Specifically, how many dollars’ worth of the market and industry index contracts would you buy or sell for each dollar held in IBM?
Suppose that the relationship between the rate of return on IBM stock, the market index, and a computer industry index can be described by the following regression equation: rIBM =.5rM + .75rindustry. If a futures contract on the computer industry is traded, how would you hedge the exposure to the systematic and industry factors affecting the performance of IBM stock? Specifically, how many dollars’ worth of the market and industry index contracts would you buy or sell for each dollar held in IBM?
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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Suppose that the relationship between the
the exposure to the systematic and industry factors affecting the performance of IBM stock?
Specifically, how many dollars’ worth of the market and industry index contracts would you buy or sell for each dollar held in IBM?
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