Derivatives 200079 Midsemester Exam

We are interested in obtaining the asset beta for Collinsville investment. Here from the reading material, we find there were altogether 6 chemical companies that produce sodium chlorates. They are Hooker, Pennwalt, American, Kerr-McGee, Brunswick and Southern. However, since we are evaluating the addition of a sodium chlorate plant, the two firms (Brunswick and Southern) who specialize in producing sodium chlorate are likely the best “twins”. To determine the asset betas of each company, we

The table below shows the equity betas for the firms presented in the case (using Jan-92 to Dec-96 equal weight NYSE/AMEX/NASDAQ as market portfolio):

1. You have a portfolio with a beta of 3.1. What will be the new portfolio beta if you keep 85 percent of your money in the old portfolio and 15 percent in a stock with a beta of 4.5?

| | B | Std. Error | Beta | | | 1 | (Constant) | 1.858 | .078 | | 23.850 | .000 | | Need for Achievement | .521 | .021 | .580 | 24.455 | .000 | a.

for the entirety of your math career, youve never calculated a moment’s slope. you only use approximations based on numbers before and after the current moment. That is, of course, until you hit calculus, when everything becomes instantaneous. In calculus, you derive equations to find how things are changing in the now; no need to focus on anything that came before or after. A tendency toward instantaneous moments occurred multiple times junior year.

You have a choice of five appetizers, ten entrees, three beverages, and six desserts. How many possible complete dinners are possible? Place your answer, as a whole number—no decimal places—in the blank. For example 176 would be a legitimate entry 900

* Stock Beta: Exhibit 5 shows a detailed measurement of the company’s stock returns in relation to the rest of the market through 5-year historical price and index data. The analysis includes monthly returns of both the NYSE and the S&P 500 index in order to capture a comprehensive view of the market return. In each comparison, the monthly returns of the Target stock and market are plotted on Y-axis and X-axis respectively to get the regression line’s slope or beta. The analysis arrives at an average beta of 0.988 which indicates a similar movement of Target stock’s returns in comparison to the whole market over time.

(See all the possible combinations on TABLE 2). 6. a) The portfolio’s risk would decrease if more stocks were.

The regression that we performed in excel for both stocks yielded a beta of .73576 for Reynolds, and a beta of 1.4198 for Hasbro. In question 2 we learned that although Reynolds stock was riskier independently, adding it to the portfolio made it more diversified compared to adding Hasbro, due to the fact that it was less correlated to the market portfolio. Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Therefore, since the beta of Reynolds is lower than Hasbro, our beta calculations align with the fact that Reynolds stock makes the overall portfolio less risky. This finding is also intuitive when considering the nature of the companies; Reynolds is a Tobacco company meaning that is should be less sensitive to changes in market conditions than a toy company like Hasbro.

5. Replace GE with Intel in your three asset portfolio. You can type over the GE ticker to

4. A particle moves along the x-axis with position at time t given by x (t) = e-t sin t for 0 ≤ t ≤ 2π.

“If given an eggplant and tape, how do you find the volume of the eggplant?” This was the extra credit question for our Calculus Midterm. After reevaluating the Calculus problem, I started thinking of ways that approach this problem by relying on the skills that I have honed everyday, which allow me to express myself.

Try to work out this question by assuming that Beta’s position had been 99% of equity funds invested in the index fund, and 1% in a riskless money market account. Imagine that you can switch from the money market account to CREIT, BG, or the index fund. Think about the condition for Sarah to be indifferent between switching to CREIT (or BG) and switching to the index.

If today PSC want to hedge out its 100 value of stock portfolio, assuming beta=1.67, alpha is 3.35%: next year 's value
today initial value QQQ+10% QQQ-10%
long portfolio 100 100*(1+3.35%+1.67*10%)=120.05 100*(1+3.35%1.67*10)=86.65
short QQQ 167 167*(1-10%)=150.3 167*(1+10%)=183.7
total 267 270.35 270.35
return on hedged portfolio 3.35% 3.35%

the theoretical long portfolio value increase (portfolio return)=percentage increase in QQQ(QQQ return)*1.67+3.35%

For this variable we take again the same risk free rate (4.66%) plus the equity market risk premium (5%) multiplied by the equity Beta of the E & P division (1.40). The beta we calculate with the comparables. The average equity beta in this industry is 1.15 and the average D/E ratio is 39.8%. With these information and the same formula as in question 3 we compute the asset beta