Answer Questions 1 Through 6 About Insuring a Portfolio Identical

question 37

Multiple Choice

Answer questions 1 through 6 about insuring a portfolio identical to the S&P 500 worth $12,500,000 with a three-month horizon. The risk-free rate is 7 percent. Three-month T-bills are available at a price of $98.64 per $100 face value. The S&P 500 is at 385. Puts with an exercise price of 390 are available at a price of 13. Calls with an exercise price of 390 are available at a price of 13.125. Round off your answers to the nearest integer.
-If the insured portfolio were dynamically hedged with T-bills,how many T-bills would be used?

• A)16,332
• B)63,002
• C)126,723
• D)61,672
• E)32,468

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Definitions:

Perceptual Illusion

A misinterpretation of a real external stimulus, illustrating how perceptions can differ from reality.

Misleading Cues

Misleading cues are incorrect or deceptive clues that lead to erroneous conclusions or perceptions.

Stimuli

Environmental events or conditions that elicit responses from organisms.

Texture Gradient

A depth cue in which the gradual change in appearance of objects from coarse to fine texture signals increasing distance.