What is the dollar value of your expected loss a

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36. What is the dollar value of your expected loss? A. $142,900 B. $16,670 C. $85,700 D. $30,000 E. $64,200 The dollar value equals the loss of 8.57% times the $1 million portfolio value = $85,700. Difficulty: Easy 37. For a 200-point drop in the S&P500, by how much does the index change? The change is 200 points times the $250 multiplier, which equals $50,000. Difficulty: Easy 23-17
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Chapter 23 - Futures, Swaps, and Risk Management 38. How many contracts should you buy or sell to hedge your position? Allow fractions of contracts in your answer. The number of contracts equals the hedge ratio = Change in portfolio value / Profit on one futures contract = $85,700/$50,000 = 1.714. You should sell the contract because as the market falls the value of the futures contract will rise and will offset the decline in the portfolio's value. Difficulty: Moderate 39. You purchased sold S&P 500 Index futures contract at a price of 950 and closed your position when the index futures was 947, you incurred: ($950 - $947) = $3 X 250 = $750. Difficulty: Moderate 23-18
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Chapter 23 - Futures, Swaps, and Risk Management 40. You took a short position in three S&P 500 futures contracts at a price of 900 and closed the position when the index futures was 885, you incurred: A. A gain of $11,250. B. A loss of $11,250. C. A loss of $8,000. D. A gain of $8,000. E. None of the above. ($900 - $885) = $15 X 250 X 3 = $11,250 Difficulty: Easy 23-19
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Chapter 23 - Futures, Swaps, and Risk Management 41. Suppose that the risk-free rates in the United States and in the Canada are 3% and 5%, respectively. The spot exchange rate between the dollar and the Canadian dollar (C$) is $0.80/ C$. What should the futures price of the C$ for a one-year contract be to prevent arbitrage opportunities, ignoring transactions costs. $0.80(1.03/1.05) = $0.78/ C$. Difficulty: Moderate 42. Suppose that the risk-free rates in the United States and in the Canada are 5% and 3%, respectively. The spot exchange rate between the dollar and the Canadian dollar (C$) is $0.80/ C$. What should the futures price of the C$ for a one-year contract be to prevent arbitrage opportunities, ignoring transactions costs. $0.80(1.05/1.03) = $0.82/ C$. Difficulty: Moderate 23-20
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Chapter 23 - Futures, Swaps, and Risk Management 43. Suppose that the risk-free rates in the United States and in the United Kingdom are 6% and 4%, respectively. The spot exchange rate between the dollar and the pound is $1.60/BP. What should the futures price of the pound for a one-year contract be to prevent arbitrage opportunities, ignoring transactions costs. $1.60(1.06/1.04) = $1.63/BP. Difficulty: Moderate You are given the following information about a portfolio you are to manage. For the long- term you are bullish, but you think the market may fall over the next month.
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