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Please help me figure out part B-1 and B-2. Imagine you are a provider of portfolio insurance. You are establishing a four-year program. The portfolio
Please help me figure out part B-1 and B-2.
Imagine you are a provider of portfolio insurance. You are establishing a four-year program. The portfolio you manage is currently worth $80 million, and you promise to provide a minimum return of 0%. The equity portfolio has a standard deviation of 25% per year, and T-bills pay 7.2% per year. Assume for simplicity that the portfolio pays no dividends (or that all dividends are reinvested). a-1. What percentage of the portfolio should be placed in bills? (Input the value as a positive value. Round your answer to 2 decimal places.) Portfolio in bills 20.44 % a-2. What percentage of the portfolio should be placed in equity? (Input the value as a positive value. Round your answer to 2 decimal places.) Portfolio in equity 79.56% b-1. Calculate the put delta and the amount held in bills if the stock portfolio falls by 3% on the first day of trading, before the hedge is in place? (Input the value as a positive value. Do not round intermediate calculations. Round your answers to 2 decimal places.) % Put delta Amount held in bills million b-1. Calculate the put delta and the amount held in bills if the stock portfolio falls by 3% on the first day of trading, before the hedge is in place? (Input the value as a positive value. Do not round intermediate calculations. Round your answers to 2 decimal places.) Put delta % million Amount held in bills b-2. What action should the manager take? (Enter your answer in millions rounded to 2 decimal places.) The manager must sell million of equity and use the proceeds to buy billsStep by Step Solution
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