Hedge Funds

Hedge Funds - Hedge Funds Hedge funds are not subject to...

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Hedge Funds Hedge funds are not subject to the same rules as mutual funds and cannot offer their securities publicly. Mutual funds must disclose investment policies, makes shares redeemable at any time, limit use of leverage take no short positions. Hedge funds are not subject to these constraints. 1
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Hedging Examples An investor owns 1,000 Microsoft shares currently worth $28 per share. A two-month put with a strike price of $27.50 costs $1. The investor is concerned about a drop in value and decides to hedge by buying 10 contracts. 2
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Value of Microsoft Shares with and without Hedging 3
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An investor with $2,000 to invest feels that a stock’s price will increase over the next 2 months. The current stock price is $20 and the price of a 2-month call option with a strike of $22.50 is $1. The cost of the option is $100 as contracts in the U.S. are for 100 shares.
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This note was uploaded on 01/19/2012 for the course FIN 4520 taught by Professor Lucyackert during the Spring '12 term at Kennesaw.

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Hedge Funds - Hedge Funds Hedge funds are not subject to...

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