Khalid is a hedge fund investor at Puma Asset Management Company. He purchased stock index fund,...

Khalid is a hedge fund investor at Puma Asset Management Company. He purchased stock index fund, currently selling at SR1, 200 per share. To protect against losses, Khalid pay put option premium for SR200 with exercise price of SR1, 200 and 3-month time to expiration. Ali is Khalid financial advisor point out that Khalid spends too much on the put options. He told Khalid to buy call options with strike price SR1, 200 and premium at 200 with same expiration date. Ali will go with call option strategy.

Analyze by fill in the following table for Khalid’s and Ali’s strategies if the stock index price reached SR800, SR1, 000, SR1,200, SR1400, SR1500.

Khalid’s strategy – put option

Ali’s strategy – Call option

Stock price ($)/market value	800	1000	1200	1400	1500
Exercise price
Option value
premium
Profit

Stock price ($)/market value	800	1000	1200	1400	1500
Exercise price
Option value
premium
Profit

Expert Solution

jeff jeffy answered 1 year ago

A hedge fund holds a long position in ABC Corp. The fund uses S&P 500 Index...

A hedge fund holds a long position in ABC Corp. The fund uses S&P 500 Index futures to eliminate the systematic risk of its position in ABC. How would an increase in ABC's non-systematic risk affect the hedging effectiveness of the fund's hedged position in the stock?

An investor holds one share of Tesla stock. The investor purchased the stock at $125. The...

An investor holds one share of Tesla stock. The investor purchased the stock at $125. The current price is now $136. If the investor also purchased an option at the time he bought the share, at a premium of $1, with a strike price of $125, what would the investor prefer to be holding right now? (Please Explain Answer). call option put option either call or put, they have the same profit $0

Donald Rock is a fund-of-fund portfolio manager of the asset management company Capital Value Ltd. His...

Donald Rock is a fund-of-fund portfolio manager of the asset management company Capital Value Ltd. His company has a proprietary model to forecast the probability of different states of the economy and the corresponding returns from different funds. Consider the following information: State of economy Probability Fund A Fund M Fund Z Good 20% 15% 20% 35% Normal 70% 10% 15% 20% Bad 10% -3% -8% -15% a. What are the expected return and standard deviation of his portfolio if...

A hedge fund with $2.3 billion of assets charges a management fee of 2% and an...

A hedge fund with $2.3 billion of assets charges a management fee of 2% and an incentive fee of 15% of returns over a money market rate, which currently is 6.8%. Calculate total fees, both in dollars and as a percent of assets under management, for portfolio returns of: Calculate total fees, both in dollars and as a percent of assets under management, for the portfolio returns in the table below. (Enter your answers for Total Fee ($ millions) in...

A hedge fund with $1.2 billion of assets charges a management fee of 3% and an...

A hedge fund with $1.2 billion of assets charges a management fee of 3% and an incentive fee of 20% of returns over a money market rate, which currently is 5%. Calculate total fees, both in dollars and as a percent of assets under management, for portfolio returns of: (Enter your answers in millions rounded to 1 decimal place.) Portfolio Rate of Return (%) Total Fee ($ million) Total Fee (%) a.−3 b.0 c.5 d.10

A hedge fund with $1.3 billion of assets charges a management fee of 2% and an...

A hedge fund with $1.3 billion of assets charges a management fee of 2% and an incentive fee of 20% of returns over a money market rate, which currently is 4%. Calculate total fees, both in dollars and as a percent of assets under management, for portfolio returns of: (Enter your answers in millions rounded to 1 decimal place.) Portfolio Rate of Return (%) Total Fee ($ million) Total Fee (%) a. −1 b. 0 c. 4 d. 8

A hedge fund with $1.7 billion of assets charges a management fee of 2% and an...

A hedge fund with $1.7 billion of assets charges a management fee of 2% and an incentive fee of 20% of returns over a money market rate, which currently is 5%. Calculate total fees, both in dollars and as a percent of assets under management, for portfolio returns of: (Enter your answers in millions rounded to 1 decimal place.) Portfolio Rate of Return (%) Total Fee ($ million) Total Fee (%) a. −3% b. 0% c. 5% d. 10%

Your friend is a hedge fund manager. He tells you that he has earned 6% returns...

Your friend is a hedge fund manager. He tells you that he has earned 6% returns on average above the S&P 500 return over the past five years, so he doesn’t believe in efficient market. Do you agree with him? Explain.

A company (the investor) purchased 860 shares of the investee’s common stock for $107,000 on January...

A company (the investor) purchased 860 shares of the investee’s common stock for $107,000 on January 2, 2021. The investee had 2,000 outstanding shares. During 2021, the investee declared dividends of $56,000 and reported earnings for the year of $452,000. If the investor company uses the equity method of accounting for its investment in the investee, its Investment in the investee account at December 31, 2021 should be

A year ago, an investor bought 1,000 shares of a mutual fund at the net asset...

A year ago, an investor bought 1,000 shares of a mutual fund at the net asset value of $25 per share. The fund distributed dividends of $2.5 and capital gains of $2. Today, the NAV is $28. a. What’s the holding period return? b. Assuming all dividends and capital gain distributions are reinvested into additional shares of the fund at an average price of $26 per share. What’s holding period return?

Question