Question

A manager wants to increase exposure of his/her stock portfolio. He/she can do so by buying high beta stocks and selling low beta stocks. The transaction costs involved will be higher if the manager achieves the same goal by purchasing stock index futures. True or false?

If you can PLEASE help me out with #25 and #26 as well. Thank you in advance!

QUESTION 24 A manager wants to increase exposure of his/her stock portfolio. He/she can do so by buying high beta stocks and selling low beta stocks. The transaction costs involved will be higher if the manager achieves the same goal by purchasing stock index futures. True False QUESTION 25 The annual equity premium is 8.2996 over the 1926-2011 period. If the U.S. 30-day T-bill rate is 3% in 2011, what is the estimate of expected return for U.S. Stocks in 2011? (Round to two decimal places, and enter only the numeric portion of the answer in percent. For example for 8.29396 enter 8.29 and for 3% enter 3.00) QUESTION 26 While the cash flows in intermediate time periods may be different for futures and forward contracts on the same asset with the same delivery date, the cash flow in the final period will always be the same. True False

Answer 1

QUESTION 24

FALSE

If the same goal is achieved using index futures, then the transaction costs will be lower as compared to buying and selling invididual stocks.

#25

Equity premium = 8.29%

T-bill rate = 3%

The estimated expected return in 2011 = Equity premium + T bill rate

The estimated expected return in 2011 = 8.29% + 3%

The estimated expected return in 2011 = 11.29%

#26

TRUE

In the intermediate time, the cash flows of futures and forward contracts may be different, but the difference vanishes on the contract expiry

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