Suppose the standard deviation of spot price changes is 0.15 and the standard deviation of the futures price changes is 0.20 and the correlation coefficient between them is 0.67.a) Compute the variance of a portfolio hedged using the optimal hedge ratio.b) Compare the variance in part (a) to the variance of an unhedged spot position.c) Compute the variance of a hedged portfolio with hedge ratio of 0.5 when the spot andfutures prices are uncorrelated.d) Compute the variance of apposition hedged by a forward contract on 75 stocks for every100 stocks in the spot market.

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Suppose the standard deviation of spot price changes is 0.15 and the standard deviation of the futures price changes is 0.20 and the correlation coefficient between them is 0.67.a)

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