How much of the portfolio should hedge

Assignment Help Finance Basics
Reference no: EM132703631

You manage the $60 million equity portion of Zee Corp's pension assets. On Friday 7th August, Zee announced that it is downsizing its workforce and would be offering early retirement to many of its employees. The impact on the portfolio you manage would be an anticipated $10 million withdrawal over the next 4 months. The stock market has been good for the past 5 years, but recently there have been signs of weakness. You are concerned about a drop in asset prices before the $10 million is withdrawn from the portfolio. You run a fairly aggressive portfolio with a beta of 1.2, relative to the S&P 500 Index. You see the following S&P 500 index futures prices:

Expiration Contract Value ($250 x Index)
SEP 1088.50
DEC 1100.00
MARx1 1110.50

A. How much of the portfolio should you hedge? Justify your answer.

B. Design a hedge based on your answer to part A above.

C. When and how would you unwind your hedge?

Reference no: EM132703631

Questions Cloud

Explain the drugs and terrorism report : Choose a country, a state, or a community and research the link between drug sales and terrorism in that location. Use the Internet and School Library to find.
Reflect critically on the activity : Pick one goal and undertake the processes detailed in the tutorial or facilitation sessions. The goal needs to adhere to the SMART guidelines
Compute the guaranteed euro proceeds : a. Compute the guaranteed euro proceeds from the American sale if Airbus decides to hedge using a forward contract.
What kind of anti-terrorism efforts can be utilized : What kind of anti-terrorism efforts can be utilized to fight drug trafficking? What kind of anti-drug efforts can be utilized to fight terrorism?
How much of the portfolio should hedge : You manage the $60 million equity portion of Zee Corp's pension assets. On Friday 7th August, Zee announced that it is downsizing its workforce
Compute the modified duration of an asset : Compute the modified duration of an asset given a Macaulay convexity of 1285, a modified convexity of 1227, and an effective annual interest rate of 3%.
Find the compensation rate s for default risk : A lender requires an annual effective interest rate of r=4% without default risk, and an annual effective interest rate of R=5.26% with default risk.
Explain significant issue relating to ethics and morality : You will write a 7 page research paper on a significant issue of your choosing relating to ethics and morality in any aspect of the course.
What is zoom video communications : What is Zoom Video Communications' business-level strategy?

Reviews

Write a Review

Finance Basics Questions & Answers

  Emitting sound waves

A human cannot hear sound at a frequency of 100 kHz or sound at 102 kHz. But if you walk into a room in which two sources are emitting sound waves, one at 100 kHz and the other at 102 kHz, you'll hear sound. Explain.

  Formulate a linear programming model

Formulate a linear programming model that can be used to determine the percentage that should be allocated to each of the possible investment alternatives

  Calculate the rate of benefits

Teri's yearly salary is$17,470. Benefits consist of one week paid vacation, 8 paid holidays, 80 percent of a total health insurance package costing $2100, 3 percent unemploymnt insurance,

  What was the current yield of the bonds

Bonds issued by Fairfax Paint have a par value of 1000 dollars, were priced at 865.35 dollars six months ago, and are priced at 795.11 today.

  Items be of concern to investors and other stakeholders

In your rationale address the specific interest of the different users of the financial statement?

  Prepare an executive level financial report

The specific objective of this graded written research exercise is to prepare an "executive level financial report" to the Chief Financial Officer (CFO) of a mythical company in which you are employed as a financial analyst.  This report will pertain..

  What is the ability-to-pay principle

Equity Which of the two principles of taxation-the benefit principle or the ability-to-pay principle-do you think is more equitable? Explain your answer.

  Explain the constitutional rights of a corporation

Explain the Constitutional rights of a corporation? What is the objective of piercing the corporate veil?

  Objective type questions on conversion price of share

Objective type questions on Conversion price of share and bond valuation and a debenture holder can exchange a bond for 25 shares of common stock

  What us federal laws are important to workplace diversity

What U. S. federal laws are important to workplace diversity initiatives?

  Competitors during the economic downturn

American Plastics had fared rather worse than its competitors during the economic downturn. With revenue, quality, and productivity down

  How is a present value associated with risk

How can you explain the fact that as the discount rate increases, the present value of a cash flow decreases? Why do I value a cash flow less, when discount rate goes up? How is a present value associated with risk?

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