The Price of Microsoft Is $30 Per Share and That

question 102

Multiple Choice

The price of Microsoft is $30 per share and that of Apple is $58 per share. The price of Microsoft increases to $39 per share after one year and to $42 after two years. Also, shares of Apple increase to $66 after one year and to $71 after two years. If your portfolio comprises 100 shares of each security, what is your portfolio return over year 1 and year 2? Assume no dividends are paid.

• A) 19.32%, 7.62%
• B) 28.01%, 8.38%
• C) 23.18%, 11.43%
• D) 22.22%, 13.71%

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Definitions:

Hedge Ratio

The ratio used to calculate the number of derivatives needed to hedge a particular risk exposure.

Hedge Ratio

A ratio used to measure the proportion of exposure that is protected from risk through hedging activities.

Dollar Change

The difference in the value of a financial instrument or market index between two points in time.

Dollar Exposure

The risk associated with changes in the value of the U.S. dollar compared to other currencies in international finance.