On 13 April 2009, one finds the following quotations on aluminum futures from MCX with 30 June 2009 maturity Price Rs.78.35 per kg
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Investments
1. You have Rs.50,000 to invest for the next
year and are considering three alternatives:
a) A money market fund with an
average maturity of 30 days offering a current yield of 6% per year.
b) A 1-year savings deposit at a bank offering an
interest rate of 7.5%.
c) A 20-year Indian G-Sec offering a yield to
maturity of 9% per year.
2. What is the standard
deviation of a random variable q with the following probability distribution:
Value of q Probability
0 .25
1 .25
2 .50
3. Consider a risky portfolio.
The end-of-year cash flow derived from the portfolio will be either Rs.70,000
or Rs.2,00,000 with equal probabilities of .5. The alternative risk-free
investment in T-bills pays 6% per year.
4. On 13 April 2009, one finds
the following quotations on aluminum futures from MCX, with 30 June, 2009
maturity: Price: Rs.78.35 per kg.
The trading unit is 5 tons.
The initial margin is 5%. The spot price of aluminum on this day is Rs. 72.4.
The delivery unit is 10 kg, and the delivery center is Bhiwandi.
Show how a trader, holding
long position in this futures contract, will be affected by 10% increase in
prices of aluminum. What about a trader with short position in the contract?
Explain why the futures contract is a zero-sum game?
5. An investor wants to
invest Rs.68 million in the Indian stock market for 3 months and decides to use
Nifty futures contract as substitute for the actual holdings. The index
closed at 3,400 points
today. At present, each Nifty futures contract controls 50 (contract multiple)
times the current level of Nifty worth of stocks.
6. Why is it harder to
assess the performance of a hedge fund portfolio manager than that of a typical
mutual fund manager?
Need Answer Sheet of this Question
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