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What is the gain or loss from this hedge

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Q1. Assume that an investor who owns a diversified portfolio with a current market value of $700,000 and a Beta = 1.0 wishes to buy protect "protective puts" to prevent the portfolio value dropping 6.66 percent below its current value. The current value of the ASX200 index is 3750. What would the strike price of the puts need to be (rounded to the nearest whole number)?

a. 250

b. 3743

c. 3550

d. 3500

Q2. Assume that BHP plans to borrow $10 million in two months' time using 90-day bank accepted bills and plans to use 90-day BAB futures to hedge the interest rate risk. If the current 90-day BAB futures are quoted at 95.33 and at expiry the BAB futures are quoted at 95.05 what is the gain or loss from this hedge?

a. Gain of 6743

b. Loss of 6743

c. Gain of 5180

d. Loss of 5180

Reference no: EM133016158

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