Suppose That the Variance of Quarterly Changes in the Spot

question 5

Multiple Choice

Suppose that the variance of quarterly changes in the spot prices of a commodity is 0.49,the standard deviation of quarterly changes in a futures price on the commodity is 0.64,and the coefficient of correlation between the two changes is 0.8.The optimal hedge ratio for the contract is:

• A) 0.771
• B) 0.363
• C) 0.700
• D) 0.875
• E) None of these answers are correct.

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Definitions:

Surface Listener

An individual who listens to someone speak without fully engaging with or understanding the depth of the conversation.

Ineffective Listener

An individual who struggles to fully comprehend, retain, or respond appropriately to information communicated by others.

Effective Listener

An individual skilled in fully focusing on what others are saying, understanding the information being presented, and responding thoughtfully.

Receiving Element

A component or part that accepts or takes in signals, data, or substances in a mechanical system, electronic device, or biological organism.