45.
You are given the following information about a portfolio you are to manage. For the long-
term you are bullish, but you think the market may fall over the next month.
What is the dollar value of your expected loss?
46.
You are given the following information about a portfolio you are to manage. For the long-
term you are bullish, but you think the market may fall over the next month.
For a 75-point drop in the S&P 500, by how much does the futures position change?
47.
You are given the following information about a portfolio you are to manage. For the long-
term you are bullish, but you think the market may fall over the next month.
How many contracts should you buy or sell to hedge your position? Allow fractions of
contracts in your answer.
48.
Covered interest arbitrage
49.
A hedge ratio can be computed as
50.
E-Minis typically have a value of ____________ percent of the standard contract and exist
for ____________.
51.
The most common short term interest rate used in the swap market is
52.
If interest rate parity holds,
53.
If interest rate parity does not hold,
54.
If covered interest arbitrage opportunities do not exist,
23–65
55.
If covered interest arbitrage opportunities exist,
Short Answer Questions
56.
Why are commodity futures prices different from other futures prices? Explain the
difference and give an example of a commodity and the factors involved.
57.
Suppose that the risk-free rate is 4% and the market risk premium is 6%. You are
interested in a cocoa futures contract. The beta of cocoa is -0.291.
– What is the required annual rate of return on the cocoa contract?
– You plan to hold the contract for three months, then take delivery of the cocoa. At that
time you expect the spot price of cocoa to be $900 per ton. What is the present value of
this three-month deferred claim?
What would the proper price be for this contract?
58.
Explain how a firm that has issued $1 million of long-term bonds with a fixed 6% interest
rate can convert its fixed-rate debt into floating-rate debt. Give two numerical examples
that show the possible outcomes, one favorable and one unfavorable.