1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
svetoff [14.1K]
4 years ago
5

On July 1, an investor holds 50,000 shares of a certain stock. The market price is $30 per share. The investor is interested in

hedging against movements in the market over the next month and decides to use an index futures contract. The index futures price is currently 1,500 and one contract is for delivery of $50 times the index. The beta of the stock is 1.3. What strategy should the investor follow?
Business
1 answer:
Yakvenalex [24]4 years ago
5 0

Answer:

The strategy the investor should follow is to short 26 contracts of September Mini S&P 500 futures.

Explanation:

Provided information;

Amount of shares of a certain stock =50,000

The market value per share = $30

Portfolio value= P = 50,000 × 30 = $1,500,000

Beta of stock  β  = 1.3

current Index futures price = 1,500

Multiplier = $50

Futures Value A = 1,500 × 50 = $75,000

The formula used in calculating the number of contracts =

Number of contracts N =  (β  ×  P) ÷ Future values

N = (1.3 × $1500000) ÷ $75000

N = $1950000 ÷ $75000

Number of contracts N = 26

The strategy the investor should follow is to short 26 contracts of September Mini S&P 500 futures.

You might be interested in
With employer-paid training, workers have the potential to become more productive not only in their present employment but also
alexdok [17]

Answer:

The answer is (E) For most firms that invest in training their employees, the value added by that investment in employees who stay exceeds the value lost through other employees’ leaving to work for other companies.  

Explanation:

This question is a dilemma for companies: Should they invest on training and development for people who might not stay in the company for long periods of time? In the end, even if the employees don’t stay long in the company, the value they bring to the company after being trained are usually more significant than if the employee wasn’t trained in the first place. After all, the risk for mismanagement is higher if the latter was implemented – and will result in higher loss for the company since the bad performance of unskilled employees might impact the company not only financially, but also reputation-wise.  

6 0
3 years ago
Marigold Corp. manufactures a product with a unit variable cost of $100 and a unit sales price of $181. Fixed manufacturing cost
abruzzese [7]

Answer:

Increase in income= $20,000

Explanation:

Giving the following information:

Marigold Corp. manufactures a product with a unit variable cost of $100 and a unit sales price of $181. Fixed manufacturing costs were $480000 when 10000 units were produced and sold. The company has a one-time opportunity to sell an additional 1000 units at $120 each in a foreign market which would not affect its present sales.

We will not have into account the fixed costs, because there is unused capacity.

Increase in income= contribution margin * units sold

Increase in income= (120 - 100) * 1000= $20,000

6 0
4 years ago
How free maket economy operates
Leokris [45]

Exibindo resultados para How free market economy operates

Em vez disso, pesquisar por How free maket economy operates

Resultados da pesquisa

Trecho da Web em destaque

In a free market economy, the law of supply and demand, rather than a central government, regulates production and labor. Companies sell goods and services at the highest price consumers are willing to pay while workers earn the highest wages companies are willing to pay for their services.

6 0
4 years ago
Consider a bond with the following characteristics. Par: $1,000 Two coupon payments per year (i.e., coupons are paid semi-annual
MAXImum [283]

Answer:

The new price of the bond is $928.94

Explanation:

Initially the bond's price is equal to its par value which means the coupon rate on bond and the market interest rates are the same i.e. 6%.

Th bond's price is calculated as the sum of the present value of the annuity of interest payments by the bond and the present value of the face value of the bond that will be received at maturity. The discount rate used to calculate the present values is the market interest rate.

As the bond is a semiannual bond, we will use the semi annual coupon payment, the semi annual percentage of the annual rate of interest on market and the number of semi annual periods outstanding.

Semi annual coupon payment = 1000 * 0.06 * 6/12 = $30

Number of semiannual periods till maturity = 10 * 2 = 20 periods

New market interest rate = 6 + 1 = 7% annual

New semi annual market interest rate = 7% / 2 = 3.5%

Price of bond =  30 * [ (1 - (1+0.035)^-20) / 0.035 ] + 1000 / (1+0.035)^20

Price of bond = $928.938 rounded off to $928.94

We used the present value of annuity ordinary formula for preset value of interest payments and the normal present value of principal formula for the face value.

5 0
3 years ago
Survey topic with problem
boyakko [2]

Elections

thats a good one

6 0
4 years ago
Read 2 more answers
Other questions:
  • A relatively inflexible compensation system is , which determines the value of the jobs employees hold rather than paying indivi
    15·1 answer
  • A budget should include a balance sheet and a(n)
    13·2 answers
  • If the price of Product E decreasing by 9 % causes its quantity demanded to increase by 14 % and the quantity demanded for Produ
    12·1 answer
  • Market-oriented environmental tools _______________ for firms to take the social costs of pollution into account and ___________
    7·1 answer
  • Anna decides to add new sales representatives and increase advertising to increase sales in her existing market for her current
    7·1 answer
  • On June 1, 2020, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2021
    9·1 answer
  • Use the following data to determine the total dollar amount of assets to be
    13·1 answer
  • A student got a $5000 grant per quarter and the opportunity to work on campus at a rate of $12 per hour, but no more than 15 hou
    10·1 answer
  • Is when a product is sold from the manufacturer to the end consumer, with no wholesale or retail
    8·1 answer
  • As an alternative to selling shares of stock as a means of raising funds, a large company could, instead, a. use equity finance.
    10·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!