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Scenario 1: A stock has been range trading in a narrow price range but you expect it to break out of this range soon. You are unsure, however, which direction the stock price will break out of its current range. You want to exploit the anticipated future price change.   

Scenario 2: You hold a large stock position which you do not want to drop in value by more than 10%.

Scenario 3: You hold a large stock position and have a target wealth goal in mind. In addition, you are unwilling to risk losses beyond a certain level.  

12 marks

Question 3 (25 marks in total)

3.a.
Clarify in your own words the following four terms with respect to the futures exchange: (1) margin account; (2) marked to market; (3) margin call, and (4) maintenance margin.

8 marks

3.b.
Determine for the following 5 days from today, the marked to market (MTM) settlement amount for the changes in silver future’s price for the example below. Please note, each silver contract is for 5,000 ounces.  
   Futures Price  MTM Settlement
Day 0 (Today)  $16.50  
Day 1    $16.40  
Day 2   $16.45  
Day 3   $16.30  
Day 4   $16.25  
Day 5   $16.20  
5 marks

3.c.
Account for day 1 and for day 2 for the question above what the clearing house will do with the margin account for a long position holder and a short position holder with respect to the marked to market settlement.   
2 marks

3.d.
If a coupon rate is 5% for a Treasury bond futures contract which has a quoted price of 100 and the current market interest rate is 5%, what does the spot-futures parity imply the cash bond price should be? 
5 marks

3.e.
A stock index futures contract maturing in one year has a currently traded price of $1,000. The cash index has a dividend of 3 percent, and the interest rate is 6 percent. What does the spot-futures parity imply the cash index level to be?
5 marks

Question 4 (25 marks in total)

4.a.
The following are the expected returns and standard deviations for three stocks, A, B and C.
For Stock A, the expected return is 10% and the standard deviation is 41%.
For Stock B, the expected return is 15% and the standard deviation is 58%.
For Stock C, the expected return is 13% and the standard deviation is 48%.
The three stocks represent your portfolio for which the weighting in each stock is an equal proportion. If the correlation between Stocks A and B is 0.30, between Stocks A and C it is 0.20 and between Stocks B and C it is 0.10, what is the expected return and standard deviation of your portfolio.

The formula for calculating the variance of a two-stock portfolio is:

The formula for calculating the variance of a three-stock portfolio is: 

8 marks

4.b.
Clarify in your own words why some risk is diversifiable and some risk is nondiversifiable本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。