Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. explain the differences between exchange trading a

Explain the differences between exchange trading and over-the-counter (OTC) trading. (7 marks) ...

70.2K

Verified Solution

Question

Finance

    1. Explain the differences between exchange trading and over-the-counter (OTC) trading. (7 marks)
    1. Portfolio B consists of 15 stocks, 10 of which have beta 1 and idiosyncratic variance 0.02, and 5 of which have beta 1 and idiosyncratic variance 0.04. What is the minimum idiosyncratic variance one can achieve by investing in these stocks? You should assume that the idiosyncratic risks of the stocks included in B are independent across stocks. (Hint: the portfolio that minimises the idiosyncratic variance has equal weights in stocks with the same idiosyncratic variance.) (9 marks)
    1. A pension fund discovers that it must make additional annual pension payments of $1m in years 6 through 10. The current interest rate is 5% and the term structure is flat. The pension fund seeks to hedge the additional liability by investing in two bond portfolios A and B with durations 5 and 15, respectively. The fund must also ensure that the investment in A and B matches the value of the additional pension payments. How much should be invested in portfolios A and B? (9marks)

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Finance
1.2K views

Using the following data: (Pleae prove answers in excel spreadship & show calculations) • Initial Investment =...

Biology
1.2K views

what happen in our ear that makes us recognise who's the singer? ex. the original song...

Chemistry
1.2K views

A solution contains naphthalene (C10H8)dissolved in hexane (C6H14) at a concentration of 12.84 % naphthalene by...

Physics
1.2K views

question 1 - Suppose that the Lo = 661 m main span of a steel bridge...

Calculus
1.2K views

Write the composite function in the form f(g(x)). [Identify the inner function u = g(x)...

Calculus
1.2K views

The marginal price for a weekly demand of x bottles of shampoo in a drugstore...

Algebra
1.2K views

which consists of 2 bedrooms BR and 1 living room LR Shown below are the...

Algebra
1.2K views

Using the given equation a find the intercepts of its graph and b graph the...

Accounting
1.2K views

Discuss why companies have budgets. Please elaborate 250 words +

Accounting
1.2K views

Question 1 Not yet answered Marked out of 1.00 The DFS...

Accounting
1.2K views

A. 12000 Dn seoe: Oc. 1400 D

Accounting
1.2K views

14. What is the relative size of operating liabilities for all years presented? How has...