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u can just answer no. 2

u can just answer no. 2

MATLAB: An Introduction with Applications
MATLAB: An Introduction with Applications
6th Edition
ISBN:9781119256830
Author:Amos Gilat
Publisher:Amos Gilat
Chapter1: Starting With Matlab
Section: Chapter Questions
Problem 1P
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you can just answer no. 2
1. Suppose the CAPM holds. The expected return on the market portfolio is 6% and RF = 4%. Assume continuous compounding. A company will sell 1 unit of gold a year from today. Assume that the mean price of gold next year is $100, and the standard deviation is $20. Assume that the market 3 of gold is 0.9. (a) Find the value of the firm if it did no hedging. (b) If the firm went short $B times the value of the firm in (a) of the market portfolio, and invested the proceeds in riskless debt, then what would be the hedged firm's beta? What would be its expected return, and what would be the market value of the firm? (c) Find the price of a l-year forward contract on a unit of gold. Find the value of the firm if it hedged its gold price risk in the forward market. 2. Suppose the market portfolio consists of weights wi E[R] = 0.1, E[R,] = 0.2, var[R1] = 0.25, and var[R2] = 0.45. Assume that the correlation between the two stock returns is 0.5. 0.30 and w2 = 0.70 in two stocks. Assume that (a) Compute the variance of the market portfolio. (b) Find the beta of each stock with respect to the market portfolio. (c) Compute the value of wi B1 + w2 · B2.
Transcribed Image Text:1. Suppose the CAPM holds. The expected return on the market portfolio is 6% and RF = 4%. Assume continuous compounding. A company will sell 1 unit of gold a year from today. Assume that the mean price of gold next year is $100, and the standard deviation is $20. Assume that the market 3 of gold is 0.9. (a) Find the value of the firm if it did no hedging. (b) If the firm went short $B times the value of the firm in (a) of the market portfolio, and invested the proceeds in riskless debt, then what would be the hedged firm's beta? What would be its expected return, and what would be the market value of the firm? (c) Find the price of a l-year forward contract on a unit of gold. Find the value of the firm if it hedged its gold price risk in the forward market. 2. Suppose the market portfolio consists of weights wi E[R] = 0.1, E[R,] = 0.2, var[R1] = 0.25, and var[R2] = 0.45. Assume that the correlation between the two stock returns is 0.5. 0.30 and w2 = 0.70 in two stocks. Assume that (a) Compute the variance of the market portfolio. (b) Find the beta of each stock with respect to the market portfolio. (c) Compute the value of wi B1 + w2 · B2.
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