You are holding call options on a stock. The stock’s beta is .75, and you are concerned that the stock market is about to fall. The stock is currently selling for $5 and you hold 1 million options on the stock (i.e., you hold 10,000 contracts for 100 shares each). The option delta is .8. How much of the market-index portfolio must you buy or sell to hedge your market exposure?

Q: Suppose you construct a strategy based on options on a stock that is currently selling for $100. The…

A: Our Strategy:- Buy one call option at strike price of $95. Sell two calls at strike price of $100.…

Q: How would you change your holdings of the two stocks (i.e., for each, would you sell or buy more)?…

A: In order to evaluate which stock to buy more or less given the information one can find the Capital…

Q: Pick the best answer to the following portfolio? (Round off all numbers to 2 decimal places) Amount…

A: Beta of portfolio is weighted average beta of individual securities.  Beta is called as systematic…

Q: Assume you have $9000 to invest; A stock is trading at $90.00. A call option that expires in one…

A: As the portfolio's investment is made in stocks only, return on portfolio is calculated as the…

Q: The standard deviation of annual returns for Stock #1 is 53% and for Stock #2 is 47%. The…

A: The objective of the question is to determine the amount of Stock 2 that needs to be traded to…

Q: You are holding a stock that has a beta of 3.37 and is currently in equilibrium. The required return…

A: Beta = 3.37, Expected Return = 31.84% and, Risk Free Rate = 7.0%

Q: A stock price is $30. An investor buys one call option contract on the stock with a strike price of…

A: The possible profit or loss that an investor may experience after purchasing a call option at $28…

Q: free asset. Use it to calculate the price of the call option written on that stock, as well as the…

A: An option is an agreement between two parties granting one the opportunity to purchase or sell a…

Q: If the market portfolio unexpectedly goes down 25% (i.e., there is a -25% return on the aggregate…

A: Downtrend in the investment portfolio Your investment portfolio may be losing money for a number of…

Q: our investment club has only two stocks in its portfolio. $15,000 is invested in a stock with a beta…

A: Portfolio Beta is the weighted average beta of individual stock  Weight of stock 1 = 15000 /…

Q: Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different…

A: The term portfolio beta refers to the measure of the riskiness of the whole portfolio in relation to…

Q: Stock X has a beta of 0.5 and Stock Y has a beta of 1.5. Which of the following statements must be…

A: Financial securities are the financial assets and instruments that are traded in the financial…

Q: A stock has a CAPM return of 4.4% and an HPR return of 5.5%.  Which of the following is true?…

A: Data given: CAPM = 4.4% HPR = 5.5%

Q: You would like to invest $14,000 and have a portfolio expected return of 9.5 percent. You are…

A: A portfolio is the collection of different securities. Portfolio management helps in the…

Q: The current price of a non-dividend-paying stock is $30. Over the next six months it is expected to…

A: The objective of this question is to calculate the risk-neutral probability of the stock price…

Q: Suppose you have a stock market portfolio with a beta of 0.83 that is currently worth $725 million.…

A: Portfolio beta = 0.83Portfolio value = $725,000,000Delta = 0.30S&P Index = 2370

Q: Please respond to both. You buy a stock when you expect that its price will rise, you short a stock…

A: When it comes to stocks, "gain" or "loss" typically refers to the change in the value of an…

Q: Your investment club has only two stocks in its portfolio. $20,000 is invested in a stock with a…

A: The beta of the stock refers to the risk factor which then gets multiplied by the market risk…

Q: You are given the following information on some company's stock, as well as the risk- free asset.…

A: Here,The value of the call option is "C" and the value of the put option is "P".The stock price at…

Q: You want to use S&P 500 index options to hedge your portfolio. • Portfolio has a beta of -1.0. • It…

A: To hedge your portfolio with S&P 500 index options, we need to consider a few factors:Portfolio…

Q: Suppose that JPMorgan Chase sells call options on $1.10 million worth of a stock portfolio with beta…

A: Here,Worth of CallOptions is $1,100,000Beta is 1.45Option Delta is 0.52Current Worth of the Stock is…

Q: Suppose you have a stock market portfolio with a beta of 1.34 that is currently worth $261 million.…

A: An investor's collection of stocks, funds, and other market-traded instruments is known as their…

Q: None

A: Given DataStocks beta = 0.76Stocks currently selling at = $16Options held = 1,000,000Option delta =…

Q: You have a portfolio of options on the same underlying as follows. Each option controls 100 shares.…

A: A portfolio of options have been provided. The portfolio comprises of long and short positions in…

Q: Suppose you have a stock market portfolio with a beta of .90 that is currently worth $783 million.…

A: An investor's collection of stocks, funds, and other market-traded instruments is known as their…

Q: Raghu

A: Hedging with Calls:Buying call options allows you to buy the underlying asset (S&P 500) at a…

Q: Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different…

A: Old Portfolio Beta = 1.35Total Number of stock = 20Beta of Sold Stock = 1.0Beta of purchase Stock=…

Q: Assume you have $7000 to invest; A stock is trading at $100.00. A call option that expires in one…

A: Preimum on Options Purchased is $8.00Total Investment is $7,000Strike Price of Call Option is…

Q: You have a portfolio of options on the same underlying as follows. Each option controls 100 shares.…

A: Volatility skew refers to the phenomenon whereby options with the same expiration date and…

Q: have $95,621 to invest in two stocks and the risk-free security. Stock A has an expected return of…

A:

Q: Suppose you have a stock market portfolio with a beta of .81 that is currently worth $580 million.…

A: Portfolio beta = 0.18Portfolio value = $580,000,000Delta = 0.30S&P index = 1,270

Q: You buy a share of stock, write a one-year call option with X = $26, and buy a one-year put option…

A: Payoff on the portfolio is equal to Strike price of the stock

Q: An investor is forming a portfolio by investing $8,000 in stock A which has a beta of 0.80, and…

A: Portfolio Beta is the weighted sum of the individual asset betas. Formula to calculate Portfolio…

Q: Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different…

A: New beta of the portfolio would be 1.94.Explanation:To calculate the new beta of the portfolio after…

Q: You are holding call options on a stock. The stock’s beta is 0.65, and you are concerned that the…

A: To hedge your market exposure given the current situation, you can use the concept of beta hedging.…

Q: Consider a portfolio manager with a $20,500,000 equity portfolio under management. The manager…

A: Variables in the question:Portfolio value = $20,500,000Portfolio beta = 1.25Future price =…

Q: You buy a share of stock, write a 1-year call option with X= $55, and buy a 1-year put option with…

A: Call option writing refers to selling a call option to another investor where the buyer has complete…

Q: Using just a call option (which controls 100 shares) with a delta of 0.5 and the underlying stock,…

A: A call option is a financial contract that gives the buyer the right, but not the obligation, to…

Portfolio Management

Portfolio management is the process by which an investor decides that how the person will invest in a variety of assets in order to get a desired return in the future. A portfolio means a pool of assets that includes securities, bonds, and other investment instruments which helps in risk minimization of the money that has been invested. In other words, it can be said that a portfolio means a combination of assets in which an investor decides to invest their money in order to get a lump sum return in the future or even a series of cash flow that the person is expecting at the end of their job life.