Questions from Business Statistics

Q: Would you expect the volatility of a stock index to be greater

Would you expect the volatility of a stock index to be greater or less than the volatility of a typical stock? Explain your answer.

Q: An exchange rate is currently 0.8000. The volatility of

An exchange rate is currently 0.8000. The volatility of the exchange rate is quoted as 12% and interest rates in the two countries are the same. Using the lognormal assumption, estimate the probabilit...

Q: Does the cost of portfolio insurance increase or decrease as the beta

Does the cost of portfolio insurance increase or decrease as the beta of a portfolio increases? Explain your answer.

Q: Suppose that a portfolio is worth $60 million and a stock

Suppose that a portfolio is worth $60 million and a stock index stands at 1,200. If the value of the portfolio mirrors the value of the index, what options should be purchased to provide protection ag...

Q: Consider again the situation in Problem 17.16. Suppose that

Consider again the situation in Problem 17.16. Suppose that the portfolio has a beta of 2.0, the risk-free interest rate is 5% per annum, and the dividend yield on both the portfolio and the index is...

Q: What is the put–call parity relationship for European currency options

What is the put–call parity relationship for European currency options?

Q: Prove the results in equations (17.1), (17

Prove the results in equations (17.1), (17.2), and (17.3) using the portfolios indicated.

Q: Can an option on the yen/euro exchange rate be created

Can an option on the yen/euro exchange rate be created from two options, one on the dollar/euro exchange rate, and the other on the dollar/yen exchange rate? Explain your answer.

Q: Explain how corporations can use range forward contracts to hedge their foreign

Explain how corporations can use range forward contracts to hedge their foreign exchange risk when they are due to receive a certain amount of a foreign currency in the future.

Q: Show that the formula in equation (17.12) for

Show that the formula in equation (17.12) for a put option to sell one unit of currency A for currency B at strike price K gives the same value as equation (17.11) for a call option to buy K units of...