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Options and Financial Futures Project - repost

Assume that you have $500,000 to invest in equities and want to establish a new portfolio that includes ten (10) stocks to be selected from the Dow Jones Industrial Average of 30 companies. It is also desired to start with nearly equal dollar values of each issue. Use current market prices to compute the number of shares required.

You are bullish on the markets in the long-term; however, you have read analyst predictions that over the next 18 months the market will likely stay flat with some downside potential. Despite these predictions, you want to make some money in the short-term, and at the same time avoid any downside spikes in the markets. A hedging strategy using options and/or futures seems appropriate. Please develop a plan to accomplish your goal and give a detailed explanation, with numerical computations, of the upside opportunities and the downside risks for each chosen position.

In addition to your investment in equities, you also have $1 million dollars to invest conservatively in U.S. Treasury issues and money market securities. Select four T-bonds and/or T-notes ranging in maturity from two years to five years and purchase equal dollar amounts with a total of approximately $500,000. Invest the remaining $500,000 in the money market. You need not select individual money market issues; just assume that the money market investments are secure and return the risk free rate. Please discuss the how the inclusion of the fixed income securities affects the risk in your total portfolio.

To begin the project you need to select 10 stocks and fixed income issues. When buying large quantities of stocks, it is most usual and convenient to issue orders in round lots (rounded to 100 shares). You should do this for your analysis. When you sum the value of the rounded lots, the result will almost certainly not be exactly $500,000. Ignore that difference and use the sum of the rounded lots as your equity investment. The same holds true for the fixed income selections. A spreadsheet is provided in Doc Sharing to help you do the required computations.

General Guidelines

This project is about quality and substance, not about volume. Your narratives should be concise, comprehensive, and easy to read. APA format is required. Your pricing numbers for derivatives must be expressed in a spreadsheet format. Your presentation should be in the following order:

1. Executive Summary

2. Explanation of Hedging Strategy

3. Spreadsheet

4. Explanation of the strategy’s risks and rewards

5. Conclusion

Executive Summary

This narrative should be a brief explanation of the objective, strategy, and conclusion. There need only be enough information to provide a reader an overview of the issue, your approach, and your perceptions on how you will benefit.

Spreadsheet

For every derivative security you select as a part of your strategy, there should be a spreadsheet entry identifying the derivative, and all purchasing or selling elements, e.g. strike price, expiration, and costs. You should also show possible outcomes. Example, if you recommend selling a call option, then show the net results if the underlying stock moves down, stays flat, and rises above the strike price. The net results should be expressed in net dollars (actual return or loss), actual percentage gain or loss, and annualized percentage gain or loss.

Risks and Rewards

This is a narrative based on the probabilities shown in your spreadsheet. You should provide a brief explanation of the outcomes should the market decline, stay flat, or rise.

Conclusion

This is your opportunity to express your professional opinion that your strategy will enhance your portfolio.

Skills: Finance, Financial Markets, Financial Research

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Project ID: #5381468

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ksavin

Hi. I have successfully finished exactly this project recently. So the spreadsheet and writeup is ready, we only need to make some changes. Please feel free to contact to discuss the details.

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raiseq

1. I'll build a portfolio 2. Hedging will be done 3. Mean variance will be considered 4. 10 stocks with DJIA as benchmark will be taken. 5. A small report will be prepared along with excel. thanks, raiseq

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samin59

Experienced and accomplished academic writer at your service. Please contact for quality and result oriented services. Regards

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prithvi81

Hi, I have understanding on the subject and recently did similar assignment on using Dow jones stocks to do std dev and return calculations....thanks!!

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CameliaRux

Hello As experience I can mention: - Fixed Income derivatives trader - Market analyst - Retention manager & broker In this period I am holding webinars regarding the market evolution from the fundamental po More

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bimleshsinght

Hello Greetings! I am a CFA Level 2 candidate and an expert in Economics, Corporate Finance, Portfolio Management, Accounting, Quantitative Analysis and Mathematics. I also write for various financial portals on topic More

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ThesisPaper

Greetings! I am committed to the success of your project, and I want to show you that through exceptional writing! I am a full time freelance writer; I have taken my background in writing and marketing and turned it More

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shahbaznawaz

Hi, I have read the project description and I assure you that I can perform this task within the agreed time frame and budget. The reason of such confidence is that I have also done this type of task already. For t More

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ramanp31

Four years of writing experience, have also done my MBA in finance. Interested in this project. Thanks.

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jonpwiegand

I am an experienced fixed income trader. I have been a market maker in US Treasuries and in money market securities for several large investment banks. More recently I have been trading for a small NY based hedge fun More

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