How much should be placed in t-bills

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Reference no: EM131926247

Imagine you are a provider of portfolio insurance. You are establishing a 4-year program.

The portfolio you manage is currently worth $128 million, and you hope to provide a minimum return of 0%. The equity portfolio has a standard deviation of 23% per year, and T-bills pay 8% per year.

Assume for simplicity that the portfolio pays no dividends (or that all dividends are reinvested).

a-1 How much should be placed in T-bills? (Round your answer to 2 decimal places. Enter your answer in millions. Omit the "tiny_mce_markerquot; sign in your response.)

T-bills $ million

a-2. How much should be invested in the equity portfolio? (Round your answer to 2 decimal places. Enter your answer in millions. Omit the "tiny_mce_markerquot; sign in your response.)

Portfolio in equity $ million

b-1. What is the new delta of the portfolio if the portfolio value drops by 5 percent on the first day of trading? (Round your answer to 4 decimal places. Negative amount should be indicated by a minus sign.)

Delta of the portfolio

b-2. Complete the following (Round your answer to 2 decimal places. Enter your answer in millions. Omit the "tiny_mce_markerquot; sign in your response.):

Assuming the portfolio does fall by 5%, the manager should (Click to select)buysell $ million in.

Reference no: EM131926247

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