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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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