Answered step by step
Verified Expert Solution
Question
1 Approved Answer
A manager at Howard's Hedge Fund believes that Leonard's Lunar Landing stock is underpriced, with an alpha of 2.1% over the coming month. Below are
A manager at Howard's Hedge Fund believes that Leonard's Lunar Landing stock is underpriced, with an alpha of 2.1% over the coming month. Below are selected statistics from a regression of monthly retums on Leonard's Lunar Landing stock against the S&P 500 index. Standard Deviation of Residual 0.16 (1.e., 164 monthly) Beta 1.5 R-square 0.65 a. If the manager holds a $3 million portfolio of Leonard's Lunar Landing stock, and wishes to hedge market exposure for the next month using 1-month maturity S&P 500 futures contracts, how many contracts should he enter? The S&P 500 currently is at 1,000 and the contract multiplier is $250. Number of contracts b. Should Howard's Hedge Fund buy or sell contracts? O Buy O Sell c. What is the standard deviation of the monthly return of the hedged portfolio? Standard deviation % A manager at Howard's Hedge Fund believes that Leonard's Lunar Landing stock is underpriced, with an alpha of 2.1% over the coming month. Below are selected statistics from a regression of monthly retums on Leonard's Lunar Landing stock against the S&P 500 index. Standard Deviation of Residual 0.16 (1.e., 164 monthly) Beta 1.5 R-square 0.65 a. If the manager holds a $3 million portfolio of Leonard's Lunar Landing stock, and wishes to hedge market exposure for the next month using 1-month maturity S&P 500 futures contracts, how many contracts should he enter? The S&P 500 currently is at 1,000 and the contract multiplier is $250. Number of contracts b. Should Howard's Hedge Fund buy or sell contracts? O Buy O Sell c. What is the standard deviation of the monthly return of the hedged portfolio? Standard deviation %
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started