[Questions 20-21] An investor owns a stock. Daily change in stock price, AS, has the standard deviation of 13. To hedge risks of the stock price, the investor considers cross-hedging using one of the following futures contracts. The following table shows each futures contract's standard deviation of of futures price change, AF, and the correlation coefficient p between AS and AF. Futures contract OF 22 A 0.7 B 20 0.9 15 0.6 D 10 0.8 If the investor shorts h units of futures, the change in the portfolio value is AS-HAF. 20. Which futures contract results in the smallest variance, Var (AS hAF)? (Assume that for each futures, we use respective minimum-variance hedge ratio). (a) contract A (b) contract B (C) contract C (d) contract D 21. What is the minimum variance if we use the futures contract found in question 20? (a) 5.67 (b) 32.11 (C) 60.84 (d) 86.19