What position should you take in the beef futures market

Assignment Help Financial Management

Reference no: EM131622905

Hedging using futures

1. You are managing a portfolio of stocks which currently has a beta of 1.4 and a value of $1 million. The current level of the S&P 500 is 1200. You fear that the market is going to do poorly, and would like to reduce your beta to 0.6. If each contract's payoff is $250 times the of the S&P500 index, what position should you take in the S&P500 index futures?

2. You are an ostrich farmer and would like to hedge the risk you face due to ostrich meat price fluctuations. Unfortunately, there are no ostrich futures contracts. You have noted that the correlation between the price of ostrich meat and changes in beef futures prices is 0.7. However ostrich meat is much more volatility, with a standard deviation of daily changes of $0.3 per pound, versus beef futures, at only $0.1 per pound. You would like to hedge the risk from selling 100 000 pounds of ostrich meat. Each beef contract covers 50 000 pounds of beef. What position should you take in the beef futures market?

Reference no: EM131622905

Questions Cloud

Determine the cost of each capital component : Determine the cost of each capital component. Determine the weighted average cost of capital (WACC) for LEI.

Govern the behavior of businesses : Society creates and enforces laws that govern the behavior of businesses.

Find the proceeds on the third-party discount note : Carter Manufacturing holds a note of $5,000 that has an interest rate of 11% annually. The note was made on March 18 and is due November 13.

Define unwilling to sign an exculpatory clause : Think of an example of an exculpatory clause that you have signed. For what type of activity would you be unwilling to sign an exculpatory clause

What position should you take in the beef futures market : Each beef contract covers 50 000 pounds of beef. What position should you take in the beef futures market?

Attractive and appropriate market : Do you think the base of the pyramid represents an attractive and appropriate market for multinational corporations?

What were the ytm-current yield-the capital gains yield : What were the YTM, the current yield, the capital gains yield, and the total return at that time?

Standard deviation of npv and coefficient of variance of npv : Calculate the standard deviation of NPV and the coefficient of variance of the NPV. Interpret these results taking into consideration of the state of economy.

Explain ethical concerns with the business scenario : The purpose of this assignment is to select the best organizational form, and to explain ethical concerns with the business scenario.

User Account

All Pages