1. Which of the following best describes the relationship between a stock's beta and the standard deviation of the stock's returns?
A. The relationship depends on the correlation between the stock's returns and the market's returns.
B. The higher the standard deviation, the lower the beta.
C. The higher the standard deviation, the higher the beta.
D. Standard deviation and beta are different ways of measuring the same thing.
2. Clarke plans to satisfy cash needs in nine months by selling its Treasury bond holdings for $4 million. However, Clarke is concerned that interest rates might increase over the next three months. To hedge against this possibility, Clarke plans to sell Treasury bond futures. Thus, Clarke sells ____ futures contract for a price of 99-12. Assuming that the actual price of the futures contract declined to 97-20, Clarke would make a ____ of $____ from closing out the futures position.
a. 40; profit; $76,800
b. 40; loss; $76,800
c. 50; profit; $70,000
d. 40; profit; $70,000
e. none of the above