1A portfolio manager wants to hedge against both small and large movements in the price of an underlying asset. Which of the following describes the most effective strategy according to the course materials?
2Based on the Put-Call Parity formula (c + Ke⁻ʳᵀ = p + S₀ - D), if a European call is trading at ₦2, the strike price PV is ₦36.56, the European put is ₦1.25, the stock is ₦37, and the PV of dividends is ₦0.49, which side is overvalued and what is the initial arbitrage step?
3According to the materials, why might a company enter into an interest rate swap?
4Distinguish between systematic and unsystematic risk as defined in the context of Portfolio Theory and CAPM.
5Using the provided CAPM data where Risk Free Rate is 3% and Market Return is 15%, calculate the required return for Stock A if its Beta is 0.75.
6A client wants to achieve a portfolio beta of 1.0. If the client allocates 10% to Stock B (beta 1.12), and the remaining 90% is split between Stock A (beta 0.75) and Stock C (beta 0.22), what must be the weight of Stock A?
7A trader shorts a cotton futures contract for 50,000 pounds at 50 cents per pound. If the price at the end of the contract is 51.30 cents per pound, what is the trader's financial result?
8Calculate the theoretical futures price for gold given a spot price of $900, a simple interest rate of 4% for one year, and total storage costs of $2 payable at the end of the year.
9What does a 'Perfect Hedge' imply in derivative valuation?
10Which of the following is true regarding the Implied Repo-Rate (IRR)?
