How many put options should be purchased

Assignment Help Financial Management
Reference no: EM131548970

A portfolio manager in charge of a portfolio worth $25 million is concerned that the market might decline rapidly during the next six months and would like to use options on the S&P 100 to provide protection against the portfolio falling below$22 million. The S&P 100 index is currently standing at 2500 and each contract is on 100 times the index. a. If the portfolio has a beta of 1.0, how many put options should be purchased? b. If the portfolio has a beta of 1.0, what should the strike prices of the put options be?

Reference no: EM131548970

Questions Cloud

Cost of common equity by using three approaches : estimates its cost of common equity by using three approaches-CAPM, the bond-yield-plus-risk-premium approach and the DCF model.
What is the net present value of project : The cost of capital is 7.81 percent and the interest rate on the loan would be 2 percent. What is the net present value of the project?
What is cost of common equity : The dividend is expected to grow at a constant rate of 3% a year. What is the cost of common equity?
What should the strike prices of the put options be : If the portfolio has a beta of 1.0, what should the strike prices of the put options be?
How many put options should be purchased : If the portfolio has a beta of 1.0, how many put options should be purchased?
Require an initial investment in equipment : The project would require an initial investment in equipment of 68,000 dollars and would last for either 3 years or 4 years
Change in the price of this bond if yield to maturity rises : What is the change in the price of this bond if the yield to maturity rises to 4.75% from the current yield of 3.75%?
The cost of capital for the project : The tax rate is 50 percent and the cost of capital for the project is 6.75 percent. What is the NPV of the project?
Trim gym be indifferent between the disbursement methods : At what discount would the Trim Gym be indifferent between the disbursement methods?

Reviews

Write a Review

Financial Management Questions & Answers

  Starcross bank fails to record the mortgage.

StarCross Bank fails to record the mortgage

  Two different investments

You’re trying to choose between two different investments, both of which have up-front costs of $100,000. Investment G returns $165,000 in 9 years. Investment H returns $285,000 in 16 years.

  Comment on source of information of brads plan

Comment on Level of diversification with three technology stocks, His view on bonds and not including them in his portfolio of Brad's plan.

  What is the required return on this stock using CAPM

A company's stock has a beta of 1.47. The risk free rate is 4.75% and the expected rate of stocks is 10%. What is the required return on this stock using CAPM.

  The significance of the coase theorem

The Significance of the Coase Theorem--- ADDRESS ALL OF THESE ISSUES--- the reciprocal nature of property rights assignment in a Coasian System; equity issues in the Coasian system; problems in a Coasian system (assignment, holdout, free---rider)--

  Calculate the annual after-tax cash outflow

Barclay Polymers needs to acquire a new extruding machine whose purchase price is $600,000. However, the firm could lease the extruder from Primal Leasing Corporation for a 5-year period aand make annual payments of $115,000 at the beginning of the y..

  Cause required return to differ from coupon interest rate

What two possible reasons could cause the required return to differ from the coupon interest rate?

  Company policy to always maintain constant growth rate

Suppose you know that a company’s stock currently sells for $66.90 per share and the required return on the stock is 9 percent. You also know that the total return on the stock is evenly divided between capital gains yield and dividend yield. If it’s..

  Discreditable acts would include

Discreditable acts would include all of the following, except:

  What is the profit or loss associated with copper

Landmark Coal operates a mine. During July, the company obtained 500 tons of ore, which yielded 250 pounds of gold and 62,500 pounds of copper. The joint cost related to the operation was $500,000. Gold sells for $325 per ounce and copper sells for $..

  Calculate the net asset value? for a mutual fund

(similar to) Calculate the net asset value? (NAV) for a mutual fund with the following? values: Market value of securities held in the portfolio ?= ?$1.2 billion Liabilities of the fund ?= ?$49 million Shares outstanding ?= 55 million The net asset v..

  Calculating number of periods

One of your customers is delinquent on his accounts payable balance. how long will it take for the account to be paid off?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd