Financial Risk Manager Part 1

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Explanation:

First compute gold’s beta using

\beta = \rho \frac{\sigma_{gold}}{\sigma_{mkt}} = 0.80 \times \frac{0.30}{0.20} = 1.2

Then apply CAPM to infer gold’s expected return:

k = r_f + \beta(E[R_m]-r_f) = 3\% + 1.2(8\%-3\%) = 3\% + 6\% = 9\%

With no lease rate, the expected future spot price in 6 months is:

E[S(0.5)] = 1500 \times e^{0.09\times 0.5} = 1500e^{0.045} \approx 1568.9 \approx 1569

So the correct answer is C.

Explanation:

First compute gold’s beta using

\beta = \rho \frac{\sigma_{gold}}{\sigma_{mkt}} = 0.80 \times \frac{0.30}{0.20} = 1.2

Then apply CAPM to infer gold’s expected return:

k = r_f + \beta(E[R_m]-r_f) = 3\% + 1.2(8\%-3\%) = 3\% + 6\% = 9\%

With no lease rate, the expected future spot price in 6 months is:

E[S(0.5)] = 1500 \times e^{0.09\times 0.5} = 1500e^{0.045} \approx 1568.9 \approx 1569

So the correct answer is C.

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