A large mutual fund holds 100,000 shares of IM common stock which is currently trading at...
- A large mutual fund holds 100,000 shares of IM common stock which is currently trading at $160/share with beta 1.25. The NYSE major market index futures contract trade at $500 times the index which for the June contract is at 578.55.
- The fund managers are worried about the volatility of the tech stock in their portfolio do they want to hedge. Construct a hedge position (short or long) on the basis of this fear.
- In June their fear are realized. IBM has underperformed the market closing at $150 while the index is at 636.40. Calculate the performance of the hedge. Was it successful? explain.
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A large mutual fund holds 100,000 shares of IM common stock
which is currently trading at...
On July 1, an investor holds 50,000 shares of a certain stock. The market price is...
On July 1, an investor holds 50,000 shares of a certain stock. The market price is 30 per share. The investor is interested in hedging against movements in the market over the next 2 months and decides to use an October stock index futures contract. The index level is currently 740 and one contract is for delivery of 500 times the index. The current three month futures price is 750. The current interest rate is 6% per annum and the...
A mutual fund manager anticipates shareholder redemptions of about $32 million per quarter as the market...
A mutual fund manager anticipates shareholder redemptions of about $32 million per quarter as the market continues its slump over the next six months. She would like to hedge the future sale of stocks from the portfolio necessary to meet the redemptions, while maintaining the current characteristics of the fund. The portfolio is primarily composed of large-cap technology stocks. It has a high correlation with the Nasdaq 100 index, and the portfolio has a beta of 0.9 with this index....
A bond fund currently holds a bond portfolio with a face value of $10 million....
A bond fund currently holds a bond portfolio with a face value of $10 million. The current market value of the portfolio is only 92.2% of face, however. The fund’s managers anticipate a rise in bond yields (interest rates) in the near future, so they desire a T-bond hedging strategy to protect themselves. Given their rate expectations, should they short or go long in T-bond futures? Explain. The risk managers use $100,000 face value T-bond contracts. If they use...
Question 2 Equity mutual fund managers reveal their market views through the portion of their portfolios...
Question 2 Equity mutual fund managers reveal their market views through the portion of their portfolios they hold in cash. As they get more bullish, which of the following would you expect to see happen? The cash holdings of mutual funds should decrease The cash holdings of mutual funds should be unchanged. The cash holdings of mutual funds should increase Some technical trading rules try to detect shifts in demand and supply. Which of the following can be viewed as...
Jennifer is interested in the mutual fund RBC U.S. Index Fund – Series A. She has...
Jennifer is interested in the mutual fund RBC U.S.
Index Fund – Series A. She has a few questions for
you before she buys this investment.
a) Does the reported fund’s return include the Management
Expense Ratio (MER) ? Yes or No
b) What type of fee is charged: No-load, Front-end load or a
Back-end load?
c) Is the status of this mutual fund classified as a closed-end
or open-end mutual fund?
d) Based on your response in c), explain...
Question 2 Equity mutual fund managers reveal their market views through the portion of their portfolios they hold in cash. As they get more bullish, which of the following would you expect to see happen? The cash holdings of mutual funds should decrease The cash holdings of mutual funds should be unchanged. The cash holdings of mutual funds should increase Some technical trading rules try to detect shifts in demand and supply. Which of the following can be viewed as...
Jennifer is interested in the mutual fund RBC U.S.
Index Fund – Series A. She has a few questions for
you before she buys this investment.
a) Does the reported fund’s return include the Management
Expense Ratio (MER) ? Yes or No
b) What type of fee is charged: No-load, Front-end load or a
Back-end load?
c) Is the status of this mutual fund classified as a closed-end
or open-end mutual fund?
d) Based on your response in c), explain...
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