What the underlying asset is-strike price-time to expiration
Course:- Financial Management
Reference No.:- EM13942991

Assignment Help
Assignment Help >> Financial Management

Suppose you are managing a stock portfolio that is currently valued at $2,000,000. You expect the stock market will be bullish in the next 6 months. But you are also aware of a small chance of market crash and you want to insure that your portfolio value will be at least $1,800,000 in 6 months even in a market crash. In other words, you don’t want to suffer more than 10% loss in the next 6 months. Assume your stock portfolio has a beta of 1.5, the current S&P 500 level is 2,000 and the risk-free rate is 1% per annum.

How would you hedge against your portfolio value dropping below $1.8M in 6 months? Be specific with your strategy. If you are using options, specify what the underlying asset is, the strike price, time to expiration. whether it’s a call or a put and how many units to buy or short.

Put your comment

Ask Question & Get Answers from Experts
Browse some more (Financial Management) Materials
Consider a firm that needs $350 to invest in a project that will yield a single cash flow one period hence. The firm knows the probability distribution of this cash flow, but
Constant Growth Valuation Woidtke Manufacturing's stock currently sells for $33 a share. The stock just paid a dividend of $3.50 a share (i.e., D0 = $3.50), and the dividend i
Assume you are looking at a graph that relates the net present value of two mutually exclusive investment projects to various discount rates. Assume the projects have differin
Neon Corporation’s stock returns have a covariance with the market portfolio of .0385. The standard deviation of the returns on the market portfolio is 30 percent, and the exp
You read that the company just paid $6.64 dividend per share and has a growth rate of 12%. You also read its share price is $140.76. You believe the constant growth dividend m
General Automobile Corp. has decided to issue three-year foreign bonds in Japan, denominated in 5,000,000,000 Japanese Yen at par. The bonds have an annual coupon rate of 6.0%
Discuss the impact of major accounting/financial scandals on investors' asset preferences. In your opinion how do the scandals affect foreign markets? Discuss two macro vari
Cohen has issued a bond with the following characteristics: Par: $1,000; Time to maturity: 15 years; Coupon rate: 7%; Semi annual payment. What is the price of the bond if the