PLEASE ANSWER ALL QUESTIONS AND SHOW WORK 1.High Mountain Homes has an expected
ID: 2770141 • Letter: P
Question
PLEASE ANSWER ALL QUESTIONS AND SHOW WORK
1.High Mountain Homes has an expected annual return of 16.1 percent and a standard deviation of 20.3 percent. What is the smallest expected loss over the next month given a probability of 2.5 percent?
2.You purchased one SPX call option with a strike of 1,500. You wrote one SPX call option with the same maturity date and a strike of 1,450. At maturity, what is your payoff if the S&P 500 is at 1,475?
3. Your portfolio has a beta of 1.17, a standard deviation of 14.3 percent, and an expected return of 12.5 percent. The market return is 11.3 percent and the risk-free rate is 3.1 percent. What is the Treynor ratio?
4. A portfolio has a 3-year standard deviation of 18.1 percent. What is the one-year standard deviation?
Explanation / Answer
Answer 2
Answer
You purchased one SPX call option with a strike of 1,500. At maturity, if the S&P 500 is at 1,475 then you will not exercise the call option.
You wrote one SPX call option with the same maturity date and a strike of 1,450. At maturity, if the S&P 500 is at 1,475 then buyer of the call option will exercise the call option.
So your payoff will be - $ 25 ($ 1450-$ 1475).
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