It is May 30th, 2022 and you are the Vice President in charge of risk management...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
It is May 30th, 2022 and you are the Vice President in charge of risk management for Beasties Fund Inc., a funds management company that promises 'beast' like profits (that means BIG!). One of your active funds, in Information Technology, has been performing extremely well throughout the year, starting at $500m and is now worth $600m (that's a 'beast' return!). Given its performance to date, the risk management team has decided to change the composition of the fund so that it is perfectly positively correlated to the NASDAQ 100 E-mini futures contracts (see contract specifications below). Specifically, they decide to enter into 2500 contracts of NASDAQ E-mini futures, so that in December (the end of the year), they can payout a 'beast' sized return to their members. Contract specifications for the NASDAQ 100 E-mini include: Contract Size Tick size Point Value Contract Month Last Trading Day Delivery Contract Specifications: NQZ22, CME $20 x Index Price 0.25 points 1 = $20 December* *(Note: This futures contract has maturities in March (H), June (M), September (U) and December (2), but information provided is for December only.) Third Friday of the contract month Cash Given the above, and that the closing NASDAQ 100 Futures (maturing December) on May 30th is 12960.50, how would you use these futures contracts to protect the return? In providing your answer, specify the return the investors will receive, and show that your strategy works if the NASDAQ E-mini Index at the end of December is (12970+ (D 10)) or (12950 (B * 10)). (12 marks) * It is May 30th, 2022 and you are the Vice President in charge of risk management for Beasties Fund Inc., a funds management company that promises 'beast' like profits (that means BIG!). One of your active funds, in Information Technology, has been performing extremely well throughout the year, starting at $500m and is now worth $600m (that's a 'beast' return!). Given its performance to date, the risk management team has decided to change the composition of the fund so that it is perfectly positively correlated to the NASDAQ 100 E-mini futures contracts (see contract specifications below). Specifically, they decide to enter into 2500 contracts of NASDAQ E-mini futures, so that in December (the end of the year), they can payout a 'beast' sized return to their members. Contract specifications for the NASDAQ 100 E-mini include: Contract Size Tick size Point Value Contract Month Last Trading Day Delivery Contract Specifications: NQZ22, CME $20 x Index Price 0.25 points 1 = $20 December* *(Note: This futures contract has maturities in March (H), June (M), September (U) and December (2), but information provided is for December only.) Third Friday of the contract month Cash Given the above, and that the closing NASDAQ 100 Futures (maturing December) on May 30th is 12960.50, how would you use these futures contracts to protect the return? In providing your answer, specify the return the investors will receive, and show that your strategy works if the NASDAQ E-mini Index at the end of December is (12970+ (D 10)) or (12950 (B * 10)). (12 marks) *
Expert Answer:
Answer rating: 100% (QA)
To protect the return of the Information Technology fund we can use the NASDAQ 100 Emini futures contracts to create a perfectly positively correlated ... View the full answer
Related Book For
Managerial Accounting
ISBN: 9780073526706
12th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
Posted Date:
Students also viewed these finance questions
-
Fifty-nine countries won gold medals in the 2016 Summer Olympics. The table lists them, along with the total number of gold medals each won. a) Try to make a display of these data. What problems do...
-
To review chapter content related to each set of exercises, refer to the indicated Learning Objective. Revising Messages: Clarity Break the following sentences into shorter ones; revise as necessary...
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
just finished the business plan of his start-up company. According to the projections he carried-out, the initial investment is 1,500,000 SAR (assume that we are in the beginning of 2023), which will...
-
Camden National Corporation* included the following in its 2008 annual report: The following is a summary of activity in the allowance for loan losses: Required Give your opinion of trends in the...
-
The financial statements of Summit Ltd. includes the following items at December 31, 2025. Instructions a. Calculate net income and the ending balance of retained earnings at December 31, 2025. It is...
-
Describe the duties of healthcare organizations, the CEO, and medical staff.
-
A school district receives a grant from the federal government to support programs directed at special needs students. The grant is a matching grant in which each dollar spent by the school district...
-
You are approached to comment on a company's accounting disclosure quality. As an accounting analyst, what are the factors will you consider in your assessment and why?
-
Reconsider the Profit & Gambit Co. problem described in Section 2.6. Suppose that the estimated data given in Table 2.2 now have been changed as shown in the table that accompanies this problem....
-
James is considering the start-up of a lawn care company in Antigonish. He is planning to charge $75 dollars for every lawn service. He has estimated the following expenses: A used truck: $2000 /...
-
Estimate the deflection at midspan of the truss in Figure P13.12, treating it as a beam of constant cross section. The area of both the top and bottom chords is \(10 \mathrm{in} .{ }^{2} . E=29,000...
-
To what extent are parties to exchange only concerned with economic value?
-
It is commonly said that Japanese firms employ 10 times as many engineers per operations worker as US firms and 10 times fewer accountants. What effect would you expect this to have on their...
-
Raj consumes only cheese and crackers. a. Could cheese and crackers both be inferior goods for Raj? Explain. b. Suppose that cheese is a normal good for Raj while crackers are an inferior good. If...
-
Based on your estimate, compute the reactions at \(B\) and \(C\). 24 KN A -3m- B 6 kN/m 12 m
-
Suppose you helped a man who was mugged by three men. Turns out, the victim is the grandson of Roberto Ongpin. By way of gratitude, Roberto gave you Php 5 million pesos. You know better now so you...
-
A routine activity such as pumping gasoline can be related to many of the concepts studied in this text. Suppose that premium unleaded costs $3.75 per gal. Work Exercises in order. Use the...
-
Kramer Corporation is considering two investment projects, each of which would require $50,000. Cost and cash flow data concerning the two projects are given below: The high-speed photocopier would...
-
Canyonland Boat Charter Service rents live-aboard houseboats for cruising on the lake that traverses most of the Glen Canyon National Recreation area in Southern Utah. The company bases its overhead...
-
Cretin Enterprises uses a predetermined overhead rate of $21.40 per direct labor-hour. This predetermined rate was based on 8,000 estimated direct labor-hours and $171,200 of estimated total...
-
Consider expansion of a function in terms of a series \(F_{n}(x)\) in the following form: \[f(x)=\sum_{n} A_{n} F_{n}(x)\] If the functions \(F_{n}\) are orthogonal then this property helps to unfold...
-
A concrete wall \(20 \mathrm{~cm}\) thick is initially at a temperature of \(20^{\circ} \mathrm{C}\), and is exposed to steam at pressure \(1 \mathrm{~atm}\) on both sides. Find the time for the...
-
Analyze the transient problem with the Dirichlet condition for a long cylinder and for a sphere. Derive expressions for the eigenfunctions, eigenconditions, and eigenvalues. Find the series...
Study smarter with the SolutionInn App