HOW MANY OF THE ISSUES WITH THE SHARPE RATIO, WHEN APPLIED TO H...

48. - CFA 2018 EXAM LEVEL 3 DA4387 LEVEL III CFA MOCK EXAM 2018 AFTERNOON A 48. - CFA 2018 EXAM LEVEL 3 DA4387 LEVEL III CFA MOCK EXAM 2018 AFTERNOON A
CFA 2018 EXAM LEVEL 3 DA4387 LEVEL III CFA MOCK EXAM 2018 AFTERNOON A

48. How many of the issues with the Sharpe ratio, when applied to hedge fund returns listed by the

committee member, are accurate?

A. Zero.

B. One.

C. Two.

Portfolio Management—Derivatives

Question 9

Use the following information to answer the next six questions.

Dan McCaw, CFA, is an equity portfolio manager who is considering using option strategies to profit

from his views on share prices.

He collects the information given in Exhibit 1 for the premia of listed options on shares of Nelovo N.V., a

large‐cap stock listed in Amsterdam. Shares in Nelovo are currently trading at a price of €25 per share.

Exhibit 1

Option Premia for Nelovo N.V.

Expiry

Call Premia (€) Jun Aug Nov

Strike

30

0.77 1.38 1.85

25

1.09 3.50 4.25

20

5.71 7.84 8.36

Puts

Expiry

Jun

Aug

Nov

Strike

30

5.45

5.93

6.21

25

0.73

2.89

3.26

20

0.53

0.93

1.23

Due to his expertise, McCaw has been asked by other fund managers at his firm to give a short

presentation on delta hedging at the next asset allocation meeting.