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1) A fund manager has the portfolio worth= $20 million with beta of= 0.85. Manager is concerned about volatility of market over next t month and plans to use 3 month futures contract on the S&P 500 to hedge risk. Present level of index is= 1250, one contract is 250 times the index, the risk free rate is= 5% per annum. Dividend yield on index is 2 % per annum. Present three month futures price is= $1259.What position must fund manager take to hedge all exposure to market over next 2 month?

2) Let the following information about 3 stocks:
Rate of Return if State Occurs

State of Probability of:

Economy State of Economy Stock A Stock B Stock C
Boom 0.20 0.34 0.46 0.50
Normal 0.40 0.25 0.23 0.20
Bust 0.40 0.03 − 0.25 − 0.42

If your portfolio is invested 35% each in A and B and 30% in C, determine portfolio expected return? What is the variance? Compute the standard deviation? If expected T-bill rate is 4.50%, what is the expected risk premium on portfolio? If expected inflation rate is 4.00%, what are the estimated and exact expected real returns on portfolio? What are the estimated and exact expected real risk premiums on portfolio?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M914878

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