Suppose That the Standard Deviation of Monthly Changes in the Price

question 1

Multiple Choice

Suppose that the standard deviation of monthly changes in the price of commodity A is $2.The standard deviation of monthly changes in a futures price for a contract on commodity B (which is similar to commodity A) is $3.The correlation between the futures price and the commodity price is 0.9.What hedge ratio should be used when hedging a one month exposure to the price of commodity A?

• A) 0.60
• B) 0.67
• C) 1.45
• D) 0.90

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Definitions:

Grouped Frequency Distribution

A frequency distribution where data is divided into intervals or groups, making it easier to observe patterns in large data sets.

Number of Intervals

Refers to divisions in a range of data, often used in histogram construction for data analysis.

Distribution of Data

Refers to the way numerical data is spread out across different values or ranges.

Real Upper Limits

Typically refers to the actual upper bounds of data ranges in statistical analysis, though it's not a widely standardized term.