1. Stock Hedges You manage a well diversified portfolio of $21 million. The stock portion of your portfolio is 60% and it has a beta of 1.20. The other 40% of the portfolio is in riskless investments held for liquidity purposes. You want to change the complete portfolio beta to 0.90 using stock index futures. The futures contract has a multiplier of 250 and is priced at 1240. Should you buy or sell the contracts and how many contracts should you use?
a. buy 68 contracts b. buy 12 contract c. sell 12 contracts d. sell 68 contracts.
2. Jack’s diner that specializes in made to order dinners. Jennifer's is a drive through burger shop that is known for their double cheese burgers. Both companies are thinking about expanding operations during the springs and summer months by creating a mobile food truck to use at the local beach. Jack's has a WACC of 11% while Jennifer's has a WACC is 15 percent. Each project has a projected net present value of $11,500 at a discount rate of 11% and a net present value of -$3,075 at a discount rate of 14%. Of the two companies, which company or companies should proceed with the expansion?
a. Jack's only
b. Jennifer's only
c. both Jack's and Jennifer's
d. neither Jack's nor Jennifer's
e. cannot be determined from the information provided