2010April01_QuestionsCorrectionsList(2)

# 2010April01_QuestionsCorrectionsList(2) - List of...

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List of Corrections to Questions in the Text Note: manual. Chapter 5 1. Question 10: Change wording of question to: You have a position in 200 shares of a technology stock with an annualized standard deviation of changes in the price of the stock being 30 . Say that you want to hedge this position over a one-year horizon with a technology stock index. Suppose that the index value has an annual standard deviation of 20 . The correlation between the two annual changes is 0 . 8 . How many units of the index should you hold to have the best hedge? 2. Question 11: Change the phrase Carry out the following analyses: to Carry out the following analyses using Excel: 3. Question 12: Change the ﬁrst sentence from Use the same data as presented above to compute the hedge ratio using regres- sion analysis. to Use the same data as presented above to compute the hedge ratio using regres- sion analysis, again using Excel. 4. Question 14: Change the ﬁrst sentence from You use silver wire in manufacturing, looking to buy 100,000 oz of silver in three months’ time and need to hedge silver price changes in three months. to 1

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You use silver wire in manufacturing. You are looking to buy 100,000 oz of silver in three months’ time and need to hedge silver price changes over these three months. 5. Question 18: (a) Change the ﬁrst two sentences to: You are asked to hedge price changes in a security S over a maturity T . The correlations of price changes in S , and price changes in futures contracts F 1 , F 2 are given by the following correlation matrix: (b) Change the sentence If the standard deviations of the returns on the three assets are given by to If the standard deviations of the price changes on the three assets are given by 6. Question 20: Replace the four bullet points with The standard deviation of changes in the USD/JPY spot exchange rate is 0.0005. The standard deviation of changes in the USD/EUR forward exchange rate is 0.05. The correlation of changes in the USD/JPY spot rate with changes in the USD/EUR forward rate is - 0 . 40 . There is no basis risk in hedging USD/EUR spot with USD/EUR forwards. Replace the phrase “EUR/USD forward FX market” in the sentence following the bullet points with “USD/EUR forward market”. 7. Question 21: Replace σ ( F 1 ) and σ ( F 2 ) with σ (Δ( F 1 )) and σ (Δ( F 2 )) , respectively. Chapter 6 1. Question 19: Change the ﬁrst sentence from A ﬁrm plans to borrow money over the next two half-year periods and is able to obtain a ﬁxed-rate loan at 6% per annum. 2
to A ﬁrm plans to borrow money over the next two half-year periods and is able to obtain a ﬁxed-rate loan calling for semi-annual payments at 6% per annum (i.e., at 3% every 6 months). 2. Question 21: Replace the question with

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2010April01_QuestionsCorrectionsList(2) - List of...

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