Questions from Business Statistics

Q: A company has a $20 million portfolio with a beta of

A company has a $20 million portfolio with a beta of 1.2. It would like to use futures contracts on a stock index to hedge its risk. The index futures price is currently standing at 1080, and each con...

Q: The party with a short position in a futures contract sometimes has

The party with a short position in a futures contract sometimes has options as to the precise asset that will be delivered, where delivery will take place, when delivery will take place, and so on. Do...

Q: What are the most important aspects of the design of a new

What are the most important aspects of the design of a new futures contract?

Q: Explain why a short hedger’s position improves when the basis strengthens unexpectedly

Explain why a short hedger’s position improves when the basis strengthens unexpectedly and worsens when the basis weakens unexpectedly.

Q: When first issued, a stock provides funds for a company.

When first issued, a stock provides funds for a company. Is the same true of a stock option? Discuss.

Q: Explain what is meant by basis risk when futures contracts are used

Explain what is meant by basis risk when futures contracts are used for hedging.

Q: ‘‘If the minimum variance hedge ratio is calculated as 1.

‘‘If the minimum variance hedge ratio is calculated as 1.0, the hedge must be perfect.’’ Is this statement true? Explain your answer.

Q: Explain what a stop–limit order to sell at 20.

Explain what a stop–limit order to sell at 20.30 with a limit of 20.10 means.

Q: At the end of one day a clearing house member is long

At the end of one day a clearing house member is long 100 contracts, and the settlement price is $50,000 per contract. The original margin is $2,000 per contract. On the following day the member becom...

Q: An American put option on a non-dividend-paying stock

An American put option on a non-dividend-paying stock has 4 months to maturity. The exercise price is $21, the stock price is $20, the risk-free rate of interest is 10% perannum, and the volatility is...