The Change in Spot Prices Has a Standard Deviation of $1.The

question 13

Multiple Choice

The change in spot prices has a standard deviation of $1.The change in futures prices has a standard deviation of $1.25.The correlation of spot and futures prices is 1.If the daily risk free interest rate is $R = 1.000055$ (corresponding to a continuously-compounded rate of 2% per year) ,then what is the tailed hedge ratio for a spot position hedged by a 30-day futures contract?

• A)0.7889
• B)0.7922
• C)0.7994
• D)0.8000

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Definitions:

Investors

Individuals or entities that allocate capital with the expectation of receiving financial returns.

Operating

Refers to the activities and processes carried out by a company in its day-to-day business to generate income, excluding investing and financing activities.

Nonoperating

Items on a financial statement that are unrelated to the core operations of the business, such as investment income or losses.

Financial Activities

Transactions related to the financing of a company, including issuing debt, repaying debt, equity financing, and paying dividends.