$4.73 Question 11 (1 point) Suppose that the standard deviation of quarterly changes in the prices of a commodity is $0.65, th standard deviation of quarterly changes in a futures price on the commodity is $0.81, and the coefficient of correlation between the two changes is 0.8. What is the optimal hedge ratio for a three-month contract and what does it mean? 0.704, This means that the size of the futures position should be 70.4% of the size of the company's exposure in an annual hedge. 0.684, This means that the size of the futures position should be 70.4% of the size of the company's exposure in an annual hedge. 0.660, This means that the size of the futures position should be 70.4% of the size of the company's exposure in a three-month hedge. 0.642. This means that the size of the futures position should be 70.4% of the size of the company's exposure in a three-month hedge. Question 12 (1 point) Consider a two-period binomial model in which the underlying stock is currently trading at $30 and can go up 14 per cent or down 11 per cent each period. The risk