Questions from General Investment

Q: The current level of the S&P 500 is 3,

The current level of the S&P 500 is 3,000. The dividend yield on the S&P 500 is 2%. The risk-free interest rate is 1%. What should be the price of a one-year maturity futures contract?

Q: Christie Johnson, CFA, has been assigned to analyze Sundanci using

Christie Johnson, CFA, has been assigned to analyze Sundanci using the constant-dividend-growth price– earnings (P/E) ratio model. Johnson assumes that Sundanci’s earnings and dividends will grow at a...

Q: The multiplier for a futures contract on a stock market index is

The multiplier for a futures contract on a stock market index is $50. The maturity of the contract is one year, the current level of the index is 3,000, and the risk-free interest rate is 0.2% per mon...

Q: You are a corporate treasurer who will purchase $1 million of

You are a corporate treasurer who will purchase $1 million of bonds for the sinking fund in three months. You believe rates soon will fall and would like to repurchase the company’s sinking fund bonds...

Q: A manager is holding a $1 million bond portfolio with a

A manager is holding a $1 million bond portfolio with a modified duration of eight years. She would like to hedge the risk of the portfolio by short-selling Treasury bonds. The modified duration of T-...

Q: A corporation plans to issue $10 million of 10-year

A corporation plans to issue $10 million of 10-year bonds in three months. At current yields, the bonds would have modified duration of eight years. The T-note futures contract is selling at F0 = 100...

Q: The S&P 500 Index is currently at 3,000

The S&P 500 Index is currently at 3,000. You manage a $15 million indexed equity portfolio. The S&P 500 futures contract has a multiplier of $50. a. If you are temporarily bearish on the stock marke...

Q: a. How would your hedging strategy in the previous problem change

a. How would your hedging strategy in the previous problem change if, instead of holding an indexed portfolio, you hold a portfolio of only one stock with a beta of 0.6? b. How many contracts would y...

Q: A corporation has issued a $10 million issue of floating-

A corporation has issued a $10 million issue of floating-rate bonds on which it pays an interest rate 1% over the LIBOR rate. The bonds are selling at par value. The firm is worried that rates are abo...

Q: The one-year futures price on a particular stock-index

The one-year futures price on a particular stock-index portfolio is 2,240, the stock index currently is 2,200, the one-year riskfree interest rate is 3%, and the year-end dividend that will be paid on...