11. Which of the following is not a reason for firms to hedge? (Points : 1) Firms can hedge less expensively than can their shareholders Shareholders cannot tolerate mark-to-market losses Hedging by corporations can have tax advantages Shareholders are not always aware of their firms' risks none of the above

Question 12. 12. Find the profit if the investor buys a July futures at 75, sells an October futures at 78 and then reverses the July futures at 72 and the October futures at 77. (Points : 1)

-3 -1 2 1 -2

Question 13. 13. Determine the optimal hedge ratio for Treasury bonds worth $1,000,000 with a modified duration of 12.45 if the futures contract has a price of $90,000 and a modified duration of 8.5 years. (Points : 1)

16.27 15.93 7.42 11.11 9.23

Question 14. 14. What is the profit on a hedge if bonds are purchased at $150,000, two futures contracts are sold at $72,500 each, then the bonds are sold at $147,500 and the futures are repurchased at $74,000 each? (Points : 1)

-$2,500 -$3,500 -$500 -$3,000 -$5,500

Question 15. 15. Find the optimal stock index futures hedge ratio if the portfolio is worth $1,200,000, the beta is 1.15 and the S&P 500 futures price is 450.70 with a multiplier of 250. (Points : 1)

10.65 5325.05 6123.80 12.25 45.55

Question 16. 16. In which of the following situations would you use a short hedge? (Points : 1)

the planned purchase of a stock the planned purchase of commercial paper the planned issuance of bonds the planned repurchase of stock to cover a short position none of the above

Question 17. 17. You hold a stock portfolio worth $15 million with a beta of 1.05. You would like to lower the beta to 0.90 using S&P 500 futures, which have a price of 460.20 and a multiplier of 250. What transaction should you do? Round off to the nearest whole contract. (Points : 1)

sell 20 contracts sell 9,778 contracts sell 130 contracts buy 50,000 contracts sell 50,000 contracts

Question 18. 18. You hold a bond portfolio worth $10 million and a modified duration of 8.5. What futures transaction would you do to raise the duration to 10 if the futures price is $93,000 and its implied modified duration is 9.25? Round up to the nearest whole contract. (Points : 1)

buy 17 contracts buy 109 contracts buy 669 contracts sell 100 contracts sell 669 contracts

Question 19. 19. Which of the following statements about the use of futures in tactical asset allocation is correct? (Points : 1)

Implementing tactical asset allocation using futures is a form of market timing. Futures can be used to synthetically buy or sell stocks but you cannot simultaneously adjust the beta or duration A difference between the portfolio held and the index on which the futures is based will generate a gain for the investor. The use of futures in tactical asset allocation will generate cash from the synthetic sale, which is then used in the synthetic purchase. None of the above

Question 20. 20. Though a cross hedge has somewhat higher risk than an ordinary hedge, it will reduce risk if which of the following occurs? (Points : 1)

futures prices are more volatile than spot prices the spot and futures contracts are correctly priced at the onset spot and futures prices are positively correlated futures prices are less volatile than spot prices none of the above