Ask question

Ask question

All categories

2 years ago

9

Mr. Saso is currently holding $10,000,000 worth of Exxon mobile stock in his portfolio. In order to hedge his position Mr Saso s

hould

1 answer:

bonufazy [111]2 years ago

7 0

Answer:

B. Write a put option on $10 million worth of Exxon Mobile

Explanation:

In order to hedge or reduce the risk Mr Saso should be writing a put option as it permits to sell the stock at the price i.e. predetermined. In case when there is a drop in price that falls the position so it would not be destroyed and therefore the profits could be made

The other option i.e. c and d are not correct as there is no requirement of call option and also long position

And, the option a is also wrong because in this it considered buying the particular amount not for selling it

Hence, the correct option is B

You might be interested in

A repetitive manufacturing firm is planning on level material use. The following information has been collected. Currently, the

Sloan [31]

Answer:

setup cost = $1.75

setup time = 2.625 min

Explanation:

given data

firm operates = 250 days per year

Annual demand = 22,000

Daily demand = 88

Daily production = 250

Desired lot size = 63 (2 hours of production)

Holding cost = $40 per unit per year

to find out

setup cost and setup time

solution

we find first setup cost that is express as

setup cost = $\frac{Q^2*H*(1-\frac{d}{p})}{2D}$ ......................1

here Q is Desired lot size and H is Holding cost and d is Daily demand and D is Annual demand and p is Daily production

put here value

setup cost = $\frac{63^2*40*(1-\frac{88}{250})}{2*22000}$

setup cost = $\frac{2969*40*(0.648)}{44000}$

setup cost = $1.75

and

setup time is

setup time = $\frac{setup\ cost}{setup\ labor}$ ....................2

setup time = $\frac{1.75*60min/hr}{40}$

setup time = 2.625 min

8 0

2 years ago

Your uncle holds just one stock, East Coast Bank (ECB). You agree that this stock is relatively safe, but you want to demonstrat

g100num [7]

Complete question:

Assume that your uncle holds just one stock, East Coast Bank (ECB), which he thinks has very little risk. You agree that the stock is relatively safe, but you want to demonstrate that his risk would be even lower if he were more diversified. You obtain the following returns data for West Coast Bank (WCB). Both banks have had less variability than most other stocks over the past 5 years.

Year ECB WCB

2004 40.00% 40.00%

2005 -10.00% 15.00%

2006 35.00% -5.00%

2007 -5.00% -10.00%

2008 15.00% 35.00%

a. What is the expected return and risk of each stock?

b. Measured by the standard deviation of returns, by how much would your uncle's risk have been reduced if he had held a portfolio consisting of 60% in ECB and the remainder in WCB? In other words, what is the difference between portfolio's standard deviation and weighted average of components' standard deviations? (Hint: check the example on page 11-12 on my note).

Solution:

The estimated return of the stock is the average profit.

So the average of ECB is (40-10+35-5+15)/5

= $\frac{75 percent}{5}$

= 15% expected return

WCB expected return = 40+15-5-10+35

= $\frac{75 percent}{5}$

= 15%

They've had the same planned return.

This is generally defined in the Greek letter Mu, (U) A weighted average may also be used to calculate portfolio volatility.

Standard deviation of ECB is $\sqrt{{ sum [(x-U)^2]/5}}$

so for ECB:

$(40-15)^2$ = $25^2$ =6.25%

$(-10-15)^2$ = $-35^2$ = 0.1225

$(35-15)^2$ = $20^2$ = 0.04

$(-5-15)^2$ = $-20^2$ = 0.04

$(15-15)^2$ =0

now 0.0625+0.1225+0.04+0.04+0=0.265

stdev= $\sqrt{(0.265/5)}$ = 0.23

So WCB is the same except in a different order to make things quick I'm only going to add the median again WCB=0.23

Then the 60/40 portfolio will be the "weighted average" of the returns.

portfolio returns

2004: (60%*40%)+(40%*40%) = 40%

2005: (60%*-10%)+(40%*15%) = 0%

2006: (60%*35%)+(40%*-5%) = 19%

2007: (60%*-5%)+(40%*-10%) = -7%

2008:(60%*15%)+(40%*35%) = 23%

we have an average return of (40+19-7+23)/5 = 75/5 =15%

The estimated return of all combined stocks is a better way to do so.

we knew they both had expected returns of 15% so we can say

(60%*15%)+(40%*15%)=15% so the portfolio has an expected return of 15%

Now we do the standard deviation for the whole portfolio and get

$(40-15)^2$ = $25^2$ =6.25%

$(0-15)^2$ = - $25^2$ =6.25%

$(19-15)^2$ = $4^2$ = 0.16%

$(-7-15)^2$ = $-22^2$ = -4.84%

$(23-15)^2$ = $8^2$ = 0.64%

now add them up and get 9.78%

$\sqrt{(9.78%/5)}$ = 13.98%

Therefore, the normal portfolio variance is 13.98 per cent and the predicted portfolio return is 15 per cent.

Every stock has a standard deviation of 23 per cent and an average return of 15 per cent, meaning that the fund has the same estimated return but with less standard deviation. This ensures that the same gain is less costly. It's stronger than any of these products.

5 0

2 years ago

At a sales volume of 40,000 units, Lonnie Company's total fixed costs are $40,000 and total variable costs are $60,000. The rele

eduard

Answer:

$115,000

Explanation:

Calculation for the total expected cost

First step is to find the variable cost per unit

Variable costs per unit= 60,000/40,000

Variable costs per unit= 1.50 per unit.

Second step is to find the Total variable costs

Total variable costs =50,000 units × 1.50 per units

Total variable costs=$75,000

Last step is add the total fixed costs of the amount of $40,000 to the Total variable costs of $75,000

Total expected cost =$75,000+$40,000

Total expected cost =$115,000

Therefore the total expected cost will be $115,000

3 0

2 years ago

Bonds of Zello Corporation with a par value of $1,000 sell for $960, mature in five years, and have a 7% annual coupon rate paid

AURORKA [14]

Answer and Step by Step Explanation:

a i)Current yield = Coupon/Price = $70/$960 = 0.0729 = 7.29%

ii. Yield to maturity (to the nearest whole percent, i.e., 3%, 4%, 5%, etc.)

YTM = 3.993% semiannually or 7.986% annual bond equivalent yield.On a financial calculator, enter: n = 10; PV = –960; FV = 1000; PMT = 35

iii.

Realized compound yield is 4.166% (semiannually), or 8.332% annual bond equivalent yield.

Therefore to get this value, we would find the future value (FV) of reinvested coupons and principal in which there will be six payments of$35 each, reinvested semiannually at 3% per period.

PV = 0; PMT = 35; n = 6; i = 3%. Compute: FV = 226.39

Three years from now, the bond will be selling at the par value of $1,000 because the yield to maturity is forecast to equal the coupon rate. The total proceeds in three years will be: $226.39 + $1,000 =$1,226.39

The rate (yrealized) that makes the FV of the purchase price equal to $1,226.39: $960 * (1 + yrealized)6= $1,226.39

yrealized= 4.166% (semiannual)

b . i. Current yield. Current yield can be defined as the way capital gains or losses on bonds bought at prices , reinvestment income on coupon payments are not account for other than par value.

ii. Yield to maturity can be seen as the bond which is held until maturity and that all coupon income can be reinvested at a rate equal to the yield to maturity

iii. Realized compound yield are yield that is affected by the forecast of reinvestment rates, holding period, and yield of the bond at the end of the investor's holding period

7 0

2 years ago

Reviewing census data to see how many seniors over 55 are near your proposed location is an example of:

fomenos

Demographic. I think

4 0

2 years ago