Question

In: Accounting

Oriole Company purchases $52,900 of direct raw materials and it incurs $63,400 of direct factory labor costs.

Oriole Company purchases $52,900 of direct raw materials and it incurs $63,400 of direct factory labor costs.

Record the two transactions using the following format. The materials and labor are for the Assembly Department and the Finishing Department. (Enter negative amounts using either a negative sign preceding the number e.g. (45).

Solutions

Expert Solution

For hedging: Beta * portfolio value

($ 450,000 * 0.9) + ($ 550,000 * 1.2) = $ 1,065,000

 

As an investor is holding these securities, the position should be opposite for the index futures in order to reduce/minimise the risk i.e., hedging.

There fore, they should short the index futures.

 

Number of Contracts = Value for hedging / (value of a futures * Number of futures per contract)

                                       = $ 1,065,000 / (2600 * 10) 

                                       = 40.9615384615 contracts or 41 contracts (approximately)

Number of Contracts is 40.9615384615 contracts or 41 contracts (approximately).

Junaid answered 1 year ago
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