Over the last two years, the threat of inflation and burgeoning interest rates loom large in Australia and much of the world, presenting a different set of challenges, no less. Recent geo-political challenges have been front-of-mind exacerbating macro- economic risks, with heightened volatility seen in the markets. Considering the evolving macro-economic and geo-political challenges, the ability to hedge one's investment has gained prominence. In this assessment, you will devise hedging strategies with provided data using derivatives to hedge your stock, giving due regard to the prevailing market outlook.

Assigned Stock: STO.AX

View Data for Assigned Stock: https://docs.google.com/spreadsheets/d/14EHWsLZmOjRKo8Kn3n7o7U2lyuEcj4CcyHJP-MzS7xs/edit#gid=0

Over the last two years, the threat of inflation and burgeoning interest rates loom large in Australia and much of the world, presenting a different set of challenges, no less. Recent geo-political challenges have been front-of-mind exacerbating macro- economic risks, with heightened volatility seen in the markets. Considering the evolving macro-economic and geo-political challenges, the ability to hedge one's investment has gained prominence. In this assessment, you will devise hedging strategies with provided data using derivatives to hedge your stock, giving due regard to the prevailing market outlook.

Assigned Stock: STO.AX

1. Assume you have AUD500,000 that you must invest in stocks. Provide an analysis on potential return and risk of your assigned stock and invest all your initial capital into that stock on 2nd Oct 2023. (5 marks) a. Fundamentally analyze the assigned company in terms of expected return and potential risk. b. Show all relevant transactions that may occur in real world investment.

2. According to your analysis in part 1, hedge your stock with SPI 200 future contract for the period of 2/10/2023 to 18/10/2023 using Beta Hedge technique. (10 marks) a. Based on the analysis in the previous part, determine the hedging objective. b. Show Open and Close positions and all relevant transactions. c. Evaluate the hedging effectiveness. 3. Based on the hedging effectiveness in part 2, you decide to improve the result by using Regression Hedge ratio technique and Energy Sector Index future contract for the same period of 2/10/2023 to 18/10/2023. (10 marks) a. Run regression with the data provided. b. Show Open and Close positions and all relevant transactions. c. Evaluate the hedging effectiveness. 4. Compare the results of part 2 and part 3 in terms of pros and cons. (5 marks) a. Evaluation should be based on both hedging objectives and outcomes. b. Briefly explain why the objectives are met or not met. REPORT WRITING. Your report must document complete discussion of the process outlined above, as well as include full details of transactions executed. Transaction costs must bear evidence that it is a realistic figure. Good structure, presentation and concise writing skills are nonetheless important. Your report length can be a MAXIMUM of 2500 words (size 12 font, single spacing), including all discussion, graphs, tables and references.

1. Assume you have AUD500,000 that you must invest in stocks. Provide an analysis on potential return and risk of your assigned stock and invest all your initial capital into that stock on 2nd Oct 2023. (5 marks) a. Fundamentally analyze the assigned company in terms of expected return and potential risk. b. Show all relevant transactions that may occur in real world investment.

2. According to your analysis in part 1, hedge your stock with SPI 200 future contract for the period of 2/10/2023 to 18/10/2023 using Beta Hedge technique. (10 marks) a. Based on the analysis in the previous part, determine the hedging objective. b. Show Open and Close positions and all relevant transactions. c. Evaluate the hedging effectiveness. 3. Based on the hedging effectiveness in part 2, you decide to improve the result by using Regression Hedge ratio technique and Energy Sector Index future contract for the same period of 2/10/2023 to 18/10/2023. (10 marks) a. Run regression with the data provided. b. Show Open and Close positions and all relevant transactions. c. Evaluate the hedging effectiveness. 4. Compare the results of part 2 and part 3 in terms of pros and cons. (5 marks) a. Evaluation should be based on both hedging objectives and outcomes. b. Briefly explain why the objectives are met or not met.

Please answer in regard to STO.AX