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Question
Which of the following situations does NOT describe someone who should implement a hedge strategy?A) Mary is very nervous about losing profits if selling prices drop
B) Melanie's creditors will not lend her money if her crops might lose money
C) Katherine's board of directors will not tolerate losses, even if it means profits are smaller
D) Dawn wants to reduce price fluctuations, but will need to conduct many transactions to achieve her goals
Answer
This answer is hidden. It contains 1 characters.
Related questions
Q:
Assume the following: LN(S) and LN(Q) have a correlation coefficient of -0.65, S(0) = 55, Q(0) = 60, r = 0.04, σs = 0.22 σQ = 0.15, and dividends = 0. Using formula 20.39, what is the price of a claim that pays Q/?
A) $8.16
B) $9.16
C) $10.16
D) $11.16
Q:
Assume the following: LN(S) and LN(Q) have a correlation coefficient of 0.40, S(0) = 60, Q(0) = 60, r = 0.05, σs = 0.30 σQ = 0.25, and dividend = 0. Using formula 20.39, what is the price of a claim that pays ?
A) $243.96
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What advantage does a variance reduction technique offer?
Q:
Why are covariances and correlations relevant to simulation development?
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If using Monte Carlo simulation, what is a typical number of iterations employed in the model?A) 1B) 10C) 1,000D) 1,000,000
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A stock owned by a portfolio has a bankruptcy probability of 1% per year. Using a Poisson distribution, what is the probability that this firm will not declare bankruptcy over the upcoming 10 years?
A) 60%
B) 70%
C) 80%
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Monte Carlo simulation assumes all assets earn:
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Given X1 = N (0, 1) and X2 = N (0.5, 8), what is the mean of ex2?
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Why do we assume a lognormal distribution in option pricing?
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Given a mean of -4.3 and a standard deviation of 26, what is the equivalent draw from a normal distribution for a standard normal sample variable of 0.67?
A) -13.12
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What is the area under the standard normal distribution curve and is less than 0.654?
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How are call and put options used to value starting, stopping, and restarting commodity extraction projects?
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What two components go into valuing an infinite commodity reserve?
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A) $349
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Q:
The current price of silver is $32.00 per ounce. The effective lease rate and risk free rate are 3.0% and 4.0%, respectively. If the cost to mine one ounce of silver is a constant $25.00, what is the trigger price per ounce at which the silver will be mined?
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Q:
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div = 0.01. The yen to dollar spot rate is 104 and the correlation coefficient is 0.30. What would be the dollar price of a 2-year equity-linked foreign exchange call?
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B) $35.02
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The current Nikkei index price is 21,200. Assume σ = 0.13, r = 0.05 and div = 0.015. If
K = 20,000 yen and yen per dollar spot rates are 103, what is the dollar value of a 2-year call?
A) $13.97
B) $18.97
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Q:
The Buckingham Casino offers to give every gambler one share of Buckingham Casino Corp. stock if the price drops below $40.00, as an incentive to spur business. If S = $45.25, σ = 0.15,
r = 0.05 and div = 0, how much profit or loss is Buckingham incurring if they charge $0.25 to participate in this wager?
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Q:
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Q:
What does Girsanov's theorem tell us about drift and Brownian motion?
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For a utility function that exhibits decreasing martingale utility, the martingale utility is high when:
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B) Consumption and utility are high
C) Consumption is low and utility is high
D) Consumption is high and utility is low
Q:
Briefly define a terminal boundary condition.
Q:
Mary wagers to pay one share of stock to Matt if the price at expiration in 1 year is above $75.00. Assume S(0) = 60.00, σ = 0.15, r = 0.04, and dividend rate = 0.01. What is the value of Mary's bet?
A) $6.55
B) $7.55
C) $8.55
D) $9.55
Q:
What is the relationship of the Sharpe ratios and risk premiums between stocks and options?
Q:
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Q:
When hedging a foreign currency position, what makes a down-and-out put unattractive?
Q:
Assume S = $42, K = 45, div = 0, r = 0.04, σ = 0.48, and 80 days until expiration. What is the premium on a knock-out put option with a down-and-out barrier of $44?
A) $2.13
B) $3.13
C) $3.47
D) $4.07
Q:
What is the payoff on a 75 strike Asian option given it is a geometric average price call? The recent prices are 72, 76, 74, 78, and 78.
A) 0.46
B) 0.56
C) 0.66
D) 0.76
Q:
Assume S = $33.00, σ = 0.32, r = 0.06, div = 0.01, on a $35 strike call. Given delta = 0.3854 and gamma = 0.0847, what is the delta-gamma approximation for the call price on a $0.50 stock price increase? Assume 68 days until expiration.
A) $1.34
B) $1.36
C) $1.38
D) $1.40
Q:
What is the total dollar cost to create a delta hedge position against a 200 short call position? Assume calls are priced at $4.16, the delta is 0.7644, and stock price is $73.00.
A) $9,880
B) $10,328
C) $11,168
D) $12,660