Administering well diversified equities portfolio valued

Assignment Help Financial Management

Reference no: EM131078028

Coronation asset managers are administering a well diversified equities portfolio valued at $50 m as at 8 May 2012. The local market is likely to trade bearish in the forthcoming months and the fund managers do not want to be exposed to the bearish trend. The current level level of the index is 5950 and July put and call options are available at 5942 and 5965 respectively. Each index point is worth $5 and premiums on puts and calls are 4.5% and 4% of the index respectively. The beta of the portfolio is 1.05.

Fund Managers at Coronation asset managers are not in agreement with each other, fund manager A is arguing for hedge while Fund Manager B is of the opinion that a hedge is not necessary. The main index falls to 5206 between May and July 2012.

With the aid of relevant and clear calculations, show your support for either Fund Manager A or Fund Manager B.

Reference no: EM131078028

Questions Cloud

What is the weighted average flotation cost : Bleakly Enterprises has a capital structure of 45 percent common stock, 5 percent preferred stock, and 50 percent debt. The flotation costs are 4.5 percent for debt, 7 percent for preferred stock, and 9.5 percent for common stock. The corporate tax r..

The advantages and disadvantages of JIT systems : What is just-in-time (JIT) inventory system? What are the advantages and disadvantages of JIT systems?

Maturity value-tax exempt-zero coupon bonds : Assume that the City of Tampa sold an issue of $1,000 maturity value, tax exempt (muni), zero coupon bonds 5 years ago. The bonds had a 25-year maturity when they were issued, and the interest rate built into the issue was a nominal 10 percent, but w..

Rate of return for three-year period or holding period yield : Exactly three years ago, you purchased a $1,000 face value bond for $1,211.16. The coupon rate was 6.5 percent with interest paid semiannually. Today, you sold that bond for $1,089.54. What was your rate of return for the 3-year period, or holding pe..

Administering well diversified equities portfolio valued : Coronation asset managers are administering a well diversified equities portfolio valued at $50 m as at 8 May 2012. The local market is likely to trade bearish in the forthcoming months and the fund managers do not want to be exposed to the bearish t..

Zero coupon bond issue-about stockholder incentives : Equity as an Option: Sunburn Sunscreen has a zero coupon bond issue outstanding with a $21,000 face value that matures in one year. The current market value of the firm's assets is $21,000. What does this problem suggest to you about stockholder ince..

Cash versus stock payment : Penn Corp. is analyzing the possible acquisition of Teller Company. Both firms have no debt. Penn believes the acquisition will increase its total aftertax annual cash flows by $2 million indefinitely. The current market value of Teller is $43 millio..

Net advantage or disadvantage of re-working the keyboards : The masassas company has 55 obsolete keyboards that are carried in inventory at a cost of $9600.If these keyboards are upgraded at a cost of $6500, they could be sold for $18,100. Alternatively, the keyboards could be sold as is for $8600. What is th..

Debt must be repaid in two equal installments : Digital Organics (DO) has the opportunity to invest $1.02 million now (t = 0) and expects after-tax returns of $620,000 in t = 1 and $720,000 in t = 2. The project will last for two years only. This debt must be repaid in two equal installments. Assu..

User Account

All Pages