You are considering investing in the S&P500 index (as a New Zealander), and whether to hedge...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You are considering investing in the S&P500 index (as a New Zealander), and whether to hedge against exchange rate risk or not. If you hedge, you will rebalance your hedge on a monthly basis. The attached spreadsheet contains data on the S&P500 index's value (as a total return index, so you do not have to worry about dividends), along with the US dollar/NZ dollar exchange rate, and 1 month interest rates for the two countries. (a) Calculate the value of the S&P500 total return index in NZ dollars using the exchange rate. (b) Now calculate returns from this unhedged value. (c) What is the Sharpe ratio of the unhedged investment? (d) Use the one month interest rates, along with the exchange rates to calculate one-m -month forward exchange rates for each date. (e) Suppose that you hedge your position in the S&P500 index each month, what would be your return (in $NZ)? (f) What is the Sharpe ratio of the hedged investment? You are considering investing in the S&P500 index (as a New Zealander), and whether to hedge against exchange rate risk or not. If you hedge, you will rebalance your hedge on a monthly basis. The attached spreadsheet contains data on the S&P500 index's value (as a total return index, so you do not have to worry about dividends), along with the US dollar/NZ dollar exchange rate, and 1 month interest rates for the two countries. (a) Calculate the value of the S&P500 total return index in NZ dollars using the exchange rate. (b) Now calculate returns from this unhedged value. (c) What is the Sharpe ratio of the unhedged investment? (d) Use the one month interest rates, along with the exchange rates to calculate one-m -month forward exchange rates for each date. (e) Suppose that you hedge your position in the S&P500 index each month, what would be your return (in $NZ)? (f) What is the Sharpe ratio of the hedged investment?
Expert Answer:
Answer rating: 100% (QA)
Cal cul ations for a S P 500 Total Return Index in NZ dollars S P 500 Index Value x US Do... View the full answer
Related Book For
Fundamentals of Corporate Finance
ISBN: 978-1259024962
6th Canadian edition
Authors: Richard Brealey, Stewart Myers, Alan Marcus, Devashis Mitra, Elizabeth Maynes, William Lim
Posted Date:
Students also viewed these accounting questions
-
Suppose you are considering investing in a Telus Corp. corporate bond with a $15 000 face value maturing on July 23, 2020. The bond's coupon or bond rate is 5.05 percent and interest is paid...
-
You are considering investing in a 10-year zero coupon bond that compounds interest semiannually. If the current market rate is 5.65 percent, what is the maximum price you should have pay for this...
-
You are considering investing in a Third World bank account that pays a nominal annual rate of 18%, compounded monthly. If you invest $5,000 at the beginning of each month, how many months will it...
-
Why should one-time write-offs of fixed capital be used in absorption cost systems?
-
With accumulated depreciation of 75,000 pesos for 140,000 pesos on March 1, 2009. The equipment was purchased on January 1, 2008, when the exchange rate for the peso was $.11. Relevant exchange rates...
-
Which of the following alternatives to the underlined portion would be LEAST acceptable? F. Declared G. Announced H. Affirmed J. Published
-
Determine whether each of the following statements is true or false: Management accountants are now more often looked upon as internal business advisors rather than bean counters recording historical...
-
On June 30, Danver Limited issues 5%, 20-year bonds payable with a face value of $120,000. The bonds are issued at 94 and pay interest on June 30 and December 31. Requirements 1. Journalize the...
-
Discuss the importance of Empirical and theoretical literature review in research
-
David R. and Ella M. Cole (ages 39 and 38, respectively) are husband and wife who live at 1820 Elk Avenue, Denver, CO 80202. David is a self-employed consultant, specializing in retail management and...
-
1. A companys marketing strategy can be customer-oriented (i.e., strategy designed by examining primarily customer needs) or competitor-oriented (i.e., strategy based on competitors actions). In...
-
You are an audit manager with a CPA firm that has been approached by a prospective client who wants to engage your firm to perform an audit for the current year. The prospective client is a small...
-
How do you go about getting the equipment repaired if its above 10 Level? When a piece of your Equipment cannot be fixed at the lowest level possible (10 LVL), what is the process for that equipment...
-
German insurance giant Allianz recently more than quadrupled its global advertising budget. If you worked for a direct competitor of Allianz that used the industry averages method for advertising...
-
The following is the best example of an on-chain transaction: PayPal transaction Venmo transaction Cash App transaction Bitcoin transactionSales tax preparation is a great example of a service that...
-
Find the second order partial derivative Y (x,z) XZ 10z of the function Y=- 2 X
-
Crane Corporation had the following items in inventory as at December 31, 2020: Item No. A1 B4 C2 D3 Quantity 140 140 100 90 Unit Cost $3.10 2.60 8.70 7.00 NRV $3.50 1.70 9.80 6.60 Assume that Crane...
-
An environmentalist wants to determine if the median amount of potassium (mg/L) in rainwater in Lincoln County, Nebraska, is different from that in the rainwater in Clarendon County, South Carolina....
-
A top-ranked quarterback just signed a 5-year contract, providing $3 million per year, payable at the end of each month. A hockey superstar accepts a 5-year contract, with a $4 million signing bonus,...
-
Here is Establishment Industries' market value balance sheet ($ millions): The debt is yielding 7.6% and the cost of equity is 14%. The tax rate is 37%. Investors expect this level of debt to be...
-
Assume that the 1-year interest rate is 6% and the 2-year interest rate is 7% per year. You approach a bank and ask at what rate the bank will promise to make a 1-year loan in 12 months' time. The...
-
Usha Corporation Ltd. sought the advice of an investment advisor for deployment of surplus funds of around Rs. 45 lakh in the stock market. The advisor advised to invest in Bhonsle India Ltd. and...
-
Shoppers Departmental Stores Ltd. furnishes the following details of purchase, sale etc. of its garments section for the year 200506. Determine the value of inventory of the garments section as on...
-
Usha Corporation Ltd. purchases 12,000 10% secured redeemable bonds of the face value of Rs. 100 each of Andhra Pradesh Power Finance Corporation Ltd. on 1st January for a consideration of Rs....
Study smarter with the SolutionInn App