expire 4.[25 Marks] Given the data, compute the (approximate) expected gain/loss on the underlying equity portfolio...

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expire 4.[25 Marks] Given the data, compute the (approximate) expected gain/loss on the underlying equity portfolio and the futures contracts used for creating a hedge. Period for which hedge is created: 3 months; risk-free borrowing and lending rate is 6% per annum; investor is long on an equity portfolio having a beginning value of Rs 8,020,000, one index futures (lot size 1,000 units) has a beginning price Rs 720, beta of the equity portfolio 1.35. The futures will four months from today. The dividend yield on the index is expected to be 8% per annum. The cost (brokerage and transaction costs) for the index portfolio is 1% per annum. In the best-case scenario, the index during the three months is expected to rise by 20% and fall by 2% (i.e. negative 2%) in the worst-case scenario. Both scenarios are equally likely to happen. All outstanding positions (spot and futures) related to this hedge will be closed at the end of three months. There is no need to consider continuous compounding adjustment for this question. Any missing data may be approximated based on the principles or assumptions of hedging discussed in the course. expire 4.[25 Marks] Given the data, compute the (approximate) expected gain/loss on the underlying equity portfolio and the futures contracts used for creating a hedge. Period for which hedge is created: 3 months; risk-free borrowing and lending rate is 6% per annum; investor is long on an equity portfolio having a beginning value of Rs 8,020,000, one index futures (lot size 1,000 units) has a beginning price Rs 720, beta of the equity portfolio 1.35. The futures will four months from today. The dividend yield on the index is expected to be 8% per annum. The cost (brokerage and transaction costs) for the index portfolio is 1% per annum. In the best-case scenario, the index during the three months is expected to rise by 20% and fall by 2% (i.e. negative 2%) in the worst-case scenario. Both scenarios are equally likely to happen. All outstanding positions (spot and futures) related to this hedge will be closed at the end of three months. There is no need to consider continuous compounding adjustment for this question. Any missing data may be approximated based on the principles or assumptions of hedging discussed in the course.