Answer:
a. You should short the contract to hedge the portfolio.
b. You should enter 19 contracts.
Explanation:
a) According to the given becuase we own portfolio ( underlying), we need to sell future contracts in order to hedge. So short the contract to hedge the portfolio.
b. To calculate how many contracts should you enter we would have to use the following formula:
number of contract required = (beta * portfolio value) / (beta of futures"Index value * multiplier)
Therefore, N = 0.7*10,000,000 / (1*1500*250) = 18.67 = 19 contracts
You should enter 19 contracts
Answer:
Product A Contribution per pound: $4.000
Product B Contribution per pound: $2.500
Product C Contribution per pound: $12.857
Explanation:
<u>we need to calcualte the pounds used on each product:</u>
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A: $19.5 material cost/ $3 per pound = 6.5
B: $13.5 material cost/ $3 per pound = 4.5
C: $3.85 material cost/ $3 per pound = 1.2833
Then we divide the contribution of eahc product by the amount of pounds used to know the contribution based on direct materials pounds.
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Answer:
A. The value of the preferred stock is $77.78 per share