
Explanation:
We first calculate the variance of :
The variance of is calculated using the formula:
Mean:
Now,
Now,
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Q.6508 Consider the following data for changes in yields:
| Day | (Corporate Bond Portfolio) | (Hedging Instrument) |
|---|---|---|
| 1 | 1.5 | 2.0 |
| 2 | 2.0 | 2.5 |
| 3 | 1.0 | 1.5 |
| 4 | 2.5 | 3.0 |
Given that the covariance between and is 0.273, calculate the hedge ratio ().
A
0.66
B
1.50
C
1.20
D
0.50
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