The current price of the Exchange Traded Fund YHT, which does not pay dividends, is $12.5 per share. Your position, worth 8750 dollars, consists entirely of YHT shares. The effective 3-month interest rate is 0.25% and futures contracts on YHT with 3- month maturity are trading at fair value. To protect your position against potential losses, you decide to partially hedge by selling 595 YHT futures that expire in 3 months. You have built a proprietary model according to which the 3-month net return on YHT will be between -15% and 17%. What is the lowest possible value of your combined position in 3 months based on your model? $ 8571.72 $8228.85 $7885.98 $7714.55
The current price of the Exchange Traded Fund YHT, which does not pay dividends, is $12.5 per share. Your position, worth 8750 dollars, consists entirely of YHT shares. The effective 3-month interest rate is 0.25% and futures contracts on YHT with 3- month maturity are trading at fair value. To protect your position against potential losses, you decide to partially hedge by selling 595 YHT futures that expire in 3 months. You have built a proprietary model according to which the 3-month net return on YHT will be between -15% and 17%. What is the lowest possible value of your combined position in 3 months based on your model? $ 8571.72 $8228.85 $7885.98 $7714.55
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![The current price of the Exchange Traded Fund YHT, which does not pay dividends,
is $12.5 per share. Your position, worth 8750 dollars, consists entirely of YHT shares.
The effective 3-month interest rate is 0.25% and futures contracts on YHT with 3-
month maturity are trading at fair value. To protect your position against potential
losses, you decide to partially hedge by selling 595 YHT futures that expire in 3
months. You have built a proprietary model according to which the 3-month net
return on YHT will be between -15% and 17%. What is the lowest possible value of
your combined position in 3 months based on your model?
$ 8571.72
$8228.85
$7885.98
$7714.55](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fec4b7167-da6a-4aa3-84cf-e7d9abdd47b2%2F9d9279ba-e406-470e-a2fc-12d6931b3096%2F7wecxy7.png&w=3840&q=75)
Transcribed Image Text:The current price of the Exchange Traded Fund YHT, which does not pay dividends,
is $12.5 per share. Your position, worth 8750 dollars, consists entirely of YHT shares.
The effective 3-month interest rate is 0.25% and futures contracts on YHT with 3-
month maturity are trading at fair value. To protect your position against potential
losses, you decide to partially hedge by selling 595 YHT futures that expire in 3
months. You have built a proprietary model according to which the 3-month net
return on YHT will be between -15% and 17%. What is the lowest possible value of
your combined position in 3 months based on your model?
$ 8571.72
$8228.85
$7885.98
$7714.55
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