Question
Suppose that the standard deviation of monthly changes in the price of commodity A is 3. The standard deviation of monthly changes in a futures
Suppose that the standard deviation of monthly changes in the price of commodity A is 3. The standard deviation of monthly changes in a futures price for a contract on commodity B (which is similar to commodity A) is 2.5. The correlation between the futures price and the commodity price is 0.9. What hedge ratio should be used when hedging a one month exposure to the price of commodity A?
Group of answer choices
a 1.2
b 1.05
c 1.08
d 1.35
The six-month zero rate is 8% per annum with continuous compounding. The price of a one-year bond that provides a coupon of 6% per annum semiannually is 97. What is the one-year continuously compounded zero rate?
Group of answer choices
9.02%
8.02%
8.5%
9.5%
The basis is defined as spot minus futures. A trader is hedging the purchase of an asset with a long futures position. The basis increases unexpectedly. Which of the following is true?
Group of answer choices
a The hedger's position worsens.
b The hedger's position stays the same.
c The hedger's position sometimes worsens and sometimes improves.
d The hedger's position improves.
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