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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.
Harrison Clothiers' stock currently sells for $20 a share. It just paid a dividend of $2 a share (that is, D0 = 2). The dividend is expected to grow at a constant rate of 6% a year. What stock price is expected 1 year from now?
The rate of return on Cherry Jalopies, Inc., stock over the last five years was 11 percent, 11 percent, -4 percent, 3 percent, and 7 percent. Over the same period, the return on Straw Construction Company’s stock was 16 percent, 16 percent, -5 percen..
Frazier Manufacturing paid a dividend last year of $2, which is expected to grow at a constant rate of 5%. Frazier has a beta of 1.3. If the market is returning 11% and the risk-free rate is 4%, calculate the value of Frazier's stock.
Wonder World is considering construction of a new attraction. It will require an investment of $10 million. The expected after tax cash flows are listed below and the required rate of return is 12%.
What is the expected time to complete a task with an optimistic, most likely, and pessimistic times of 3, 4 and 7 days respectively? What is the standard deviation of the same task, assuming the estimates were made at the 99% plus level?
Air products and Chemicals sold $125 million of notes in Nov. of 2003 with a December 1. 2010, maturity date. The bonds were sold at a discount of $99.721 per $100 with a coupon rate of 4.125%. Assume that bonds with a face value if $10,000 were purc..
Explain how purchase of the apple press might affect the company's revenue goals. Based on this information, explain whether Anthony's Orchard should invest in the apple press
In five years, you plan on starting graduate school to earn your MBA. You know that graduate school can be expensive and you expect you will need $15,000 per year for tuition and other school expenses. Assume that money that is not withdrawn remains ..
What is the maximum it would be reasonable ( i.e., do no financial harm) for the owner of a building to pay for a new heated drive way system if it would save $1,500 per year in ploughing charges. The owner's cost of money is 15%/yr. Assume the syste..
Thatcher Corporation's bonds will mature in 10 years. The bonds have a face value of $1000 and an 8% coupon rate, paid semiannually. The price of the bonds is $1100. The bonds are callable in 5 years at a call price of $1050. What is their yield to m..
Several years ago, a Texas bank offered a thirty-year CD with an annual return indexed to inflation. The rate offered was the annual percentage increase in the CPI plus 4 percent. Show the after-tax real return you would earn, assuming that the infla..
Which one of the following inventory management appraoches determines the finished goods inventory level and then works backward until the raw material needs are determined?
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