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A portfolio manager in charge of a portfolio worth $10 million is concerned that the market might decline rapidly during the next six months and would like to use options on the S&P 100 to provide protection against the portfolio falling below$9.5 million. The S&P 100 index is currently standing at 500 and each contract is on 100 times the index.
a) If the portfolio has a beta of 1, how many put option contracts should be purchased?
b) If the portfolio has a beta of 0.5, how many put options should be purchased?
You want to save $25,000 for a down payment on a house in 7 years. You presently have saved $8,500 that you will use towards the down payment in an account that will earn 5% annually. How much do you need to save monthly for 7 years at 6% to achieve ..
Business and financial analysts often provide trends for their industry. Find a trend (doubt, prediction, warning) in your field of interest. Speculate how the analyst derived the trend?
Assume you have the following three-asset portfolio with the following characteristics: What is percentage of your portfolio is invested in Stocks A, B, and C respectively? What is the expected return E(Rp) of the portfolio?
how much life insurance should a person have if he/she desires do provide the following income for his/her beneficiaries? $60000 per year for 10 years beginning immediately and $48000 per year beginning in the 11th year and continuing for 20 more yea..
The capital asset pricing model approach to equity valuation: You are preparing to make monthly payments of $75, beginning at the end of this month, into an account that pays 6 percent interest compounded monthly. How many payments will you have made..
Explain the term 'zero sum game' in a derivative transaction. Discuss the main difference between Treynor's position of investment risk measurement and that of Sharpe and use your answer to deduce the equation of the CAPM in each.
Tea&Juices, a foreign producer of soft drinks, is considering expanding its activities to Canada. To evaluate the profitability of the business, the management has decided to use as benchmarks two other foreign producers of soft drinks who have alrea..
David and Cheryl Allen are in their mid-30's and have two children, ages 8 and 5. They have combined annual income of $95,000 and own a house in joint tenancy with a market value of $310,000, on which they have a mortgage of $250,000. explain why it'..
Assuming that Mr. Smith does not need money desperately, which would be the best decision for Hyun-Woo (in terms of present value of future money)? (at 8% discounted interest rate)
Your parents will retire in 25 years. They currently have $300,000, and they think they will need $1,100,000 at retirement. What annual interest rate must they earn to reach their goal, assuming they don't save any additional funds?
Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $6.3 million. The project will come to an end in 6 years., when the trap becomes technologically obsolete. The firm’s tax bracket is 35%, ..
Phil owed Ralph $5,000 on a personal loan. Phil failed to repay the loan at the agreed time. One day while Phil was sitting in a restaurant with a group of friends, Ralph approached him and accused him of being a "deadbeat and a lazy crook". Ralph th..
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