The hedge fund also holds a large portfolio of zero-coupon bonds. The investment focus of the...

 

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The hedge fund also holds a large portfolio of zero-coupon bonds. The investment focus of the nedge fund is on stocks (equities), so you want to convert these bonds into the equivalent of stocks by means of a synthetic position. a) What instrument (stock, forward, bond; also state whether it is long or short) do you need to combine with your long bond position to create a synthetic long stock position? b) In the first two rows of the grid below, show how you would create a synthetic long stock position from these long bonds. Show what instrument you would use, and show the corresponding cash flows, using symbols (So, St, etc.) for the cash flows. Be sure to indicate whether each position is long or short and include (+) and (-) signs on your cash flows. Also complete the third row of the grid to confirm you have created a synthetic long stock. Transaction: Total: Time 0 cash flows: Time t cash flows: The hedge fund also holds a large portfolio of zero-coupon bonds. The investment focus of the nedge fund is on stocks (equities), so you want to convert these bonds into the equivalent of stocks by means of a synthetic position. a) What instrument (stock, forward, bond; also state whether it is long or short) do you need to combine with your long bond position to create a synthetic long stock position? b) In the first two rows of the grid below, show how you would create a synthetic long stock position from these long bonds. Show what instrument you would use, and show the corresponding cash flows, using symbols (So, St, etc.) for the cash flows. Be sure to indicate whether each position is long or short and include (+) and (-) signs on your cash flows. Also complete the third row of the grid to confirm you have created a synthetic long stock. Transaction: Total: Time 0 cash flows: Time t cash flows:

Answer rating: 100% (QA)

Synthetic Long Stock Position a Instrument needed Short Put Option To create a synthetic long stock position using a long bond you need to combine it ... View the full answer