a) What is the difference between a stock and a strip hedge? b) How do Beta and
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Question:
a) What is the difference between a stock and a strip hedge?
b) How do Beta and hedge ratio relate to each other?
c) Determine the hedge ratio for a stock portfolio that has a beta of 0.80 relative to the S&P 500. The S&P 500 is currently at 3800 and pays a 2.5% dividend yield. The hedge will be for six months (1/2 year) and the current annual risk-free rate is 1.00%.
d) Using the information from above, if the S&P 500 Futures contract is trading at 3800 (contract value = $50 x current price) and the portfolio holds $60,000,000 in stocks what would be the number of S&P 500 Futures contracts sold to hedge the portfolio?
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Related Book For
Managerial Accounting
ISBN: 978-0077522940
15th edition
Authors: Ray Garrison, Eric Noreen, Peter Brewer
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