FINE 342 Lecture Notes - Lecture 4: Forward Contract, Futures Contract, Forward Price
Document Summary
Get access
Related Documents
Related Questions
Compute the expected return of a portfolio given these three economic states, their likelihoods, and the potential returns:
Economic State Probability Return
Fast Growth 20.00% 30.00%
Slow Growth 50.00% 6.00%
Recession 30.00% -2.00%
Answer
| | 8.40% |
| | 11.33% |
| | 12.65% |
| | 15.47% |
Compute the standard deviation of a portfolio given these three economic states, their likelihoods, and the potential returns:
Economic State Probability Return
Fast Growth 20.00% 30.00%
Slow Growth 50.00% 6.00%
Recession 30.00% -2.00%
Answer
| | 1.28% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | 4.36% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | 7.82% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | 11.34% Year-to-date, Company O had earned -2.10% return. During the same time period Company V earned 8.00% and Company M earned 6.25%. If you have a portfolio made up of 40.00% Company O, 30.00% Company V, and 30.00% Company M, what is the overall portfolio return? Answer
|
Compute the expected return of a portfolio given these three economic states, their likelihoods, and the potential returns:
Economic State Probability Return
Fast Growth 20.00% 30.00%
Slow Growth 50.00% 6.00%
Recession 30.00% -2.00%
Answer
| | 8.40% |
| | 11.33% |
| | 12.65% |
| | 15.47% |
Compute the standard deviation of a portfolio given these three economic states, their likelihoods, and the potential returns:
Economic State Probability Return
Fast Growth 20.00% 30.00%
Slow Growth 50.00% 6.00%
Recession 30.00% -2.00%
Answer
| | 1.28% |
| | 4.36% |
| | 7.82% |
| | 11.34% |
Year-to-date, Company O had earned -2.10% return. During the same time period Company V earned 8.00% and Company M earned 6.25%. If you have a portfolio made up of 40.00% Company O, 30.00% Company V, and 30.00% Company M, what is the overall portfolio return?
Answer
| | 5.778% |
| | 4.270% |
| | 6.871% |
| | 3.435% |
Risk that CAN BE eliminated through proper diversification is called _____.
Answer
| | market risk |
| | firm-specific risk |
| | systematic risk |
| | non-diversifiable risk |
GIVEN: Spot Rate: 1 X = 1.02 Y
30 Day Forward Rate: 1 X = 1.15 Y
Your currency is "X" and you will be paying 345Y. You would ____ because _____.
Answer
| | pay now; of the irrelevance of payment time |
| | pay now; it will take less "X" |
| | pay in 30 days; it will take less "X" |
The amount of one currency needed to purchase one unit of another currency is the _____.
Answer
| | derivative rate |
| | exchange rate |
| | backwardation rate |
| | over-the-counter rate |
The price of an option is called a(n) _____.
Answer
| | expiration cost |
| | holding cost |
| | premium |
| | proceeds |
When a futures contract expires, the parties usually _____.
Answer
| | have a party when losses are low |
| | take delivery of the contract asset |
| | do a cash settlement |
| | swap off liabilities. |
When a forward contract expires, the parties will _____.
Answer
| | have a party when losses are low |
| | deliver the contract asset |
| | do a cash settlement |
| | swap off liabilities. |
Any asset whose value is derived from the value of some underlying asset is a(n) ____.
Answer
| | derivative |
| | primary capital |
| | spot asset |
| | intermediary asset |
Which of the following is not traded on an exchange?
Answer
| | options |
| | futures |
| | forwards |
| | they are all exchange-traded |
A system under which a country's exchange rates are tied to another currency by government policy is _____.
Answer
| | floating exchange rates |
| | pegged exchange rates |
| | convertible exchange rates |
| | forward rates |
One of the _______ for business with a floating exchange rate system is the _______ planning business activities in an international market.
Answer
| | disadvantages; difficulty of |
| | advantages; easiness of |
| | irrelevant situations; normal |
| | none of the above |
U.S. dollars deposited in foreign banks are called _____ and interest paid on these deposits is normally tied to _____.
Answer
| | non-foreign deposits; FED funds rate |
| | indirect dollars; Discount Funds Rate |
| | Eurodollars; LIBOR |
| | none of the above |
____ is a disadvantage of the gold standard.
Answer
| | Excess currency slowing economic growth |
| | Excess inflation |
| | A non-variable beta |
| | Lack of currency to promote continued economic expansion |
A monetary system in which paper money can be converted directly to gold is a(n) ___.
Answer
| | dollar backed float |
| | gold standard |
| | currency float |
| | Americanized gold standard |
| | none of the above |
Reason(s) for the Great Depression following the Great War include:
Answer
| | trade protectionism |
| | isolationism |
| | nationalism |
| | all of the above |
| | none of the above |
An agreement between the WW II allies in 1944 designed to prevent the problems leading to the Great Depression and WW II and to rebuild Asia and Europe was the _____.
Answer
| | Armistice of 1945 |
| | Bretton Woods Agreement |
| | Lend Lease Act for Asia and Europe |
| | none of the above |
A derivative is used to ____ thereby _____.
Answer
| | float; gaining excess currency for expansion |
| | peg currency; improving trade with a primary partner |
| | hedge; reducing/eliminating risk |
| | none of the above |
Easier business planning is an advantage of the ______ system.
Answer
| | mixed exchange rate |
| | floating exchange rate |
| | derivative exchange rate |
| | gold standard |
| | none of the above |
____ is the chance that some unfavorable event will occur.
Answer
| | Expected return |
| | Risk |
| | Coefficient of variation |
| | Correlation |