Order to execute synthetic-put-option insurance

Assignment Help Financial Management

Reference no: EM131900000

Only five years after graduating from UTSC with a BBA, Charlene Trump already manages a $600 million equity fund which tracks the performance of the TSX/S&P 60 index. Charlene wants to ensure that the value of the portfolio doesn't drop by more than 4.5% within the next four months. The portfolio has a volatility of 30% and dividend yield of 1.65% p.a., roughly equal to those of the TSX/S&P 60 index. The risk-free rate is currently at 1.9% p.a.. a. Please help Charlene figure out how much she should sell her holdings in order to execute a synthetic-put-option insurance. Suppose the market drops by 3.2% immediately afterwards. How much additional equity does she need to sell? b. Suppose instead Charlene wants to use 9-month TSX/S&P 60 futures to execute the synthetic hedge. How many contracts does she need to short? How should she adjust the futures position after the 3.2% drop? (The current level of TSX/S&P 60 is 910, and one TSX/S&P 60 futures contract is 250 times the index level.)

Reference no: EM131900000

Questions Cloud

When a nation imposes a tariff on importation of a commodity : When a nation imposes a tariff on the importation of a commodity, economic inefficiencies develop that detract from the national welfare. Explain.

Are the relationships zero sum or symbiotic : What are some ways Wal-Mart's stakeholder demands may conflict? How might they be highly interdependent and positively (or negatively) related to each other?

What is its after-tax cost of debt : What is Avicorp's pre-tax cost of debt, If Avicorp faces a 40 % tax rate, what is its after-tax cost of debt?

What is the historical significance of commentary : Founded on capabilities discovered later on, what do you feel those cavities had been composed of? What is the historical significance of this commentary?

Order to execute synthetic-put-option insurance : how much she should sell her holdings in order to execute a synthetic-put-option insurance.

Describe a specific tariff and a compound tariff : Describe a specific tariff, an ad valorem tariff, and a compound tariff. What are the advantages and disadvantages of each?

What does weak critical thinking look like : When faced with a problem in life or in a career, what qualities of critical thinking do you think you can improve upon?

Consider also investing in net working capital : If you're considering an investment in a new fixed asset, why might you need to consider also investing in net working capital?

What are the likely effects of chinas entry into the wto : Why has China's normal-trade-relation status been a source of controversy in the United States? What are the likely effects of China's entry into the WTO?

User Account

All Pages