Question: 1. What is the difference between a price-weighted index and a market value-weighted index? Give an example of each. 2. What makes up the total

1. What is the difference between a price-weighted index and a market value-weighted index? Give an example of each.

2. What makes up the total risk of a security? Which risk can be eliminated, and how?

3. How do hedgers and speculators use derivative securities?

4. Explain how marking-to-market works. What is the purpose?

5. You manage a stock portfolio worth $3,000,000 that has a beta of 1.4. To completely hedge the portfolio, you decide to trade S&P futures contracts. Each contract is worth $250 per index point. How many contracts do you need to buy or sell if the S&P 500 index is currently at 1,500?

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