Suppose the CAPM holds, RF =4%, and the expected return on the market portfolio is 6%. Assume continuous compounding. A company will sell 1 unit of gold a year from today. Assume the mean price of gol

Suppose the CAPM holds, RF =4%, and the expected return on the market portfolio is 6%. Assumecontinuous compounding. A company will sell 1 unit of gold a year from today. Assume the mean priceof gold GT to be $100 in a year, and the standard deviation of the gold price GT to be $20. Assumethat the gold β = .9.(a) Find the value of the firm if it did no hedging.(b) If the firm went short $ β times the value of the firm in (a) of the market portfolio, and investedthe proceeds in riskless debt, then what would be the hedged firm’s beta? What would be itsexpected return, and what would be the market value of the firm?(c) Find the forward price of a 1-year forward contract on a unit of gold. Find the value of the firmif it hedged its gold price risk in the forward market.

Show more

Calculate Your Essay Price
(550 words)

Approximate price: $22

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more