Suppose that Scotia Capital sells call options on $ 1.25 million worth of a stock portfolio with beta = 1.5. The option delta is .8. It wishes to hedge out its resultant exposure to a market advance by buying market index futures contracts. If the current value of the market index is 1,000 and the contract multiplier is $ 250, how many contracts should it buy?
Answer to relevant QuestionsThe investment manager of a corporate pension fund has purchased a Treasury bill with 182 days to maturity at a price of $ 9,600 per $ 10,000 face value. The manager has computed the bank discount yield at 8 percent. a. ...Find the price of a six- month (180- day) U. S. T-bill with a par value of $ 100,000 and a bank discount yield of 9.18 percent. Recalculate problem 13 for a portfolio manager who is not allowed to short- sell securities. a. What is the cost of the restriction in terms of Sharpe’s measure? b. What is the utility loss to the investor (A = 2.8) ...Balanced funds and asset allocation funds invest in both the stock and the bond market. What is the difference between these types of funds? Suppose two all- equity- financed firms, ABC and XYZ, both have $ 100 million of equity out-standing. Each firm now issues $ 10 million of new stock and uses the proceeds to purchase the other’s shares. a. What happens to ...
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