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sammy [17]
3 years ago
7

You are given the following information about a portfolio you are to manage. For the long term, you are bullish, but you think t

he market may fall over the next month. Portfolio Value $ 1 million Portfolio's Beta 0.60 Current S&P500 Value 1400 Anticipated S&P500 Value 1200 How many contracts should you buy or sell to hedge your position? Allow fractions of contracts in your answer. sell 11.235 buy 1.714 buy 4.236 sell 4.236 sell 1.714
Business
1 answer:
Ira Lisetskai [31]3 years ago
3 0

Answer:

sell 1.714

Explanation:

The computation of the number of contract buy or sold to hedge the position is shown below:

As we know that

Number of contracts = Hedge Ratio    

Hedge Ratio = Change in Portfolio Value ÷ Profit on one future contract

where,

Change in the value of the portfolio is

For that we need to do following calculations

Expected Drop in Index is

= (1200 - 1400) ÷ 1400    

= -14.29%    

And, Expected Loss on the portfolio is

= Beta × Expected index drop

= 0.60 × (-14.29%)    

= -8.57%    

So, the change is

= 1000000 × (-8.57%)

= -$85,700  

And, the profit is

= 200 × 250 multiplier

= 50,000

So, the hedging position is

= -$85,700 ÷ 50,000      

= -1.714  

This reflects the selling position

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4 0
3 years ago
Congratulations! You were the 10th caller on the KMTH morning show and you just won $3,000.00. After you calm down, you decide t
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Answer:

$4,697.04

Explanation:

In simple words , this question requires us to find the Future Value in 5 years time. We compound the Present Value using the effective interest rate to determine the Future Value of an investment.

<em>PV = $3,000.00</em>

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8 0
2 years ago
The Cole Beverage Company (CBC) has a soft drink product that has a constant annual demand of 3,600 cases per year. A case of th
skad [1K]

Answer:

a. 480

Explanation:

The computation of the economic order quantity is given below:

EOQ = \sqrt{\frac{2\times annual \ demand \times ordering\ cost }{carrying \ cost}}  \\\\= \sqrt{\frac{2\times 3600\times \$32}{\$1} }

= 480 units

The carrying cost could be determined below:

= $4 × 25%

= $1

hence, the carrying cost is $1

Therefore the economic order quantity is 480

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2 years ago
Esther and Elizabeth are equal partners in the EE Partnership. The partners formed the partnership seven years ago by contributi
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3 years ago
The ALG Manufacturing Company has gathered the following information for the month of September:• 6,000 units in the beginning W
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Answer:

C. 66,000

Explanation:

Ending Work in Process (WIP) = Beginning Work in Process + Units Started into Production - Units Completed and Transferred

Ending WIP = 6,000 * 100% + 60,000 - 50,000 = 16,000

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4 0
3 years ago
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