You are a provider of portfolio insurance and are establishing a four-year program. The portfolio you manage is currently worth $240 million, and you promise to provide a minimum return of O%. The equity portfolio has a standard deviation of 25% per year, and T-bills pay 4% per year. Assume that the portfolio pays no dividends.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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29
b-1. Calculate the put delta and the amount held in bills if the stock portfolio falls by 3% on the first day of trading, before the hedge is
in place? (Input the value as a positive value. Do not round intermediate calculations. Round your answers to 2 decimal places.)
5 01:56:47
Put delta
Amount held In bills
million
b-2. What action should the manager take? (Enter your answer in millions rounded to 2 decimal places, Do not round intermediate
calculations.)
million of
and usahe proceeds to
The manager must
Transcribed Image Text:29 b-1. Calculate the put delta and the amount held in bills if the stock portfolio falls by 3% on the first day of trading, before the hedge is in place? (Input the value as a positive value. Do not round intermediate calculations. Round your answers to 2 decimal places.) 5 01:56:47 Put delta Amount held In bills million b-2. What action should the manager take? (Enter your answer in millions rounded to 2 decimal places, Do not round intermediate calculations.) million of and usahe proceeds to The manager must
29
You are a provider of portfolio insurance and are establishing a four-year program. The portfolio you manage is currently worth $240
million, and you promise to provide a minimum return of O%. The equity portfolio has a standard deviation of 25% per year, and T-bills
pay 4% per year. Assume that the portfolio pays no dividends.
Required:
a-1. How much of the portfolio should be sold and placed in bills? (Input the value as a positive value. Do not round intermediate
calculations and round your final percentage answer to 2 decimal places.)
3 01:56:49
Portfolio in bills
a-2. How much of the portfolio should be sold and placed in equity? (Input the value as a positive value. Do nat round intermediate
calculations and round your final percentage answer to 2 decimal places.)
Portfolio in equity
%
b-1. Calculate the put delta and the amount held in bills if the stock portfolio falls by 3% on the first day of trading, before the hedge is
in place? (Input the value as a positive value. Do not round intermediate calculations. Round your answers to 2 decimal places.)
Put delta
million
Amount held in bills
Transcribed Image Text:29 You are a provider of portfolio insurance and are establishing a four-year program. The portfolio you manage is currently worth $240 million, and you promise to provide a minimum return of O%. The equity portfolio has a standard deviation of 25% per year, and T-bills pay 4% per year. Assume that the portfolio pays no dividends. Required: a-1. How much of the portfolio should be sold and placed in bills? (Input the value as a positive value. Do not round intermediate calculations and round your final percentage answer to 2 decimal places.) 3 01:56:49 Portfolio in bills a-2. How much of the portfolio should be sold and placed in equity? (Input the value as a positive value. Do nat round intermediate calculations and round your final percentage answer to 2 decimal places.) Portfolio in equity % b-1. Calculate the put delta and the amount held in bills if the stock portfolio falls by 3% on the first day of trading, before the hedge is in place? (Input the value as a positive value. Do not round intermediate calculations. Round your answers to 2 decimal places.) Put delta million Amount held in bills
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