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1. A manager has a $100 million portfolio that consists of 50% stock and 50% bonds. The beta of the stock position is 1.3. The modified duration of the bond position is 2. The manager wishes to achieve an effective mix of 70% stock and 30% bonds. The price and beta of the stock index futures contracts are $412,562 and 1 respectively. (The futures price includes the effect of the index multiplier.) The price, modified duration, and yield beta of the bond futures contracts are $99,580, 4, and 1 respectively. What is the appropriate strategy?

A. Short 88 bond futures contracts and go long 63 stock index futures contracts.

B. Go long 176 bond futures contracts and short 51 stock index futures contracts.

C. Short 176 bond futures contracts and go long 63 stock index futures contracts.

D. Go long 88 bond futures contracts and short 15 stock index futures contracts.

2. Following is selected information about a project’s cash flows: CF0 CF1 CF2 CF3 CF4 ?? $11,000 $15,000 $8,000 $6,000 The IRR of this project is 14.26%. If the WACC for the project is 11%, what is the project’s NPV (rounded to the nearest $1)?

a. $3,219 b. $1,886 c. $0 d. -$2,108

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92744105

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