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Thefollowingispartof thecomputeroutputfromaregressionofmonthlyreturnsofWaterworksstockagainstthe S&P 500indexmonthlyreturns. AhedgefundmanagerbelievesthatWaterworksisunderpriced,withanalphaof 2%overthecomingmonth. Beta R-square Standarddeviation 0.9 0.5 0.055 (i.e. 5.5%monthly) (4points)Ifheholdsa $5millionportfolioofWaterworksstock, andwishestohedgemarketexposurefor thenextmonthusing1-monthmaturityS&P 500futurescontracts,howmanycontractsshouldheenter?Shouldhebuyorsellcontracts? The S&P 500currentlyisat1,200 and thecontractmultiplieris$250. (3points)Whatistheannualisedstandarddeviationof
- Thefollowingispartof thecomputeroutputfromaregressionofmonthlyreturnsofWaterworksstockagainstthe S&P 500indexmonthlyreturns. AhedgefundmanagerbelievesthatWaterworksisunderpriced,withanalphaof 2%overthecomingmonth.
Beta
R-square
Standarddeviation
0.9
0.5
0.055 (i.e. 5.5%monthly)
- (4points)Ifheholdsa $5millionportfolioofWaterworksstock, andwishestohedgemarketexposurefor thenextmonthusing1-monthmaturityS&P 500futurescontracts,howmanycontractsshouldheenter?Shouldhebuyorsellcontracts? The S&P 500currentlyisat1,200 and thecontractmultiplieris$250.
- (3points)Whatistheannualisedstandarddeviationof themonthlyreturnof thehedgedportfolio?
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Cases in Financial Reporting
Authors: Michael J. Sandretto
1st edition
538476796, 978-0538476799
