According to the CME Group, the market price of the E-mini futures is $2,939.25. Each futures contract delivers 50 times the index. A long-only equity portfolio with a market value of USD $10,000,000 has a beta of 1.25. The portfolio manager is planning to increase market exposure such that the portfolio beta becomes 2.25. How many futures contracts should the manager long/short? 16 (a) Short 68 (b) Long 68 (c) Short 51 (d) Long 51

According to the CME Group, the market price of the E-mini futures is $2,939.25. Each futures contract delivers 50 times the index. A long-only equity portfolio with a market value of USD $10,000,000 has a beta of 1.25. The portfolio manager is planning to increase market exposure such that the portfolio beta becomes 2.25. How many futures contracts should the manager long/short? 16 (a) Short 68 (b) Long 68 (c) Short 51 (d) Long 51

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 25P

See similar textbooks

Similar questions

A company has a $36 million portfolio with a beta of 1.2. The futures price for a contract on an index is 900. Futures contracts on $250 times the index can be traded. What trade is necessary to reduce beta to 0.9? A. Short 48 contracts B. Long 48 contracts C. Short 192 contracts D. Long 192 contracts
A company has $20 million portfolio with beta of 0.8. It would like to use futures contracts on the S&P 500 to hedge its risk. The index is currently standing at 1050, and each contract is for delivery of $250 per index points. What is the hedge that minimises its risk? What should the company do if it wants to reduce the beta of the portfolio to 0.2? a. Buying 76 futures contracts minimises the risk. To reduce the beta to 0.2, the company should instead buy 61 contracts. b. Buying 61 futures contracts minimises the risk. To reduce the beta to 0.2, the company should instead buy 46 contracts. c. Selling 76 futures contracts minimises the risk. To reduce the beta to 0.2, the company should instead sell 61 contracts. d. Selling 61 futures contracts minimises the risk. To reduce the beta to 0.2, the company should instead sell 46 contracts.
A company has a $10million portfolio with a beta of 1.5. Suppose that the standard deviation of semi-annual changes in the prices of a commodity is $0.72, the standard deviation of semi- annual changes in a futures price on the commodity is $0.81, and the coefficient of correlation between the two changes is 0.9. What is the optimal hedge ratio for a six-month contract? 0.8 O 0.9 О 1.2 O 0.642
A company has $20 million portfolio with market beta 1.2. Current index futures price is F0 = 1080 and each contract is for delivery of 250 times the index. To reduce the beta of portfolio to 0.6, the company should (a) short 44 index futures contracts (b) short 74 index futures contracts (c) short 88 index futures contracts (d) buy 44 index futures contracts (e) buy 89 index futures contracts
The S&P 500 futures price is 4372 and you have a portfolio of stocks valued at $20,000,000. Each futures contract is worth $250. If the portfolio moves exactly like the index, how many contracts do you need to hedge this portfolio and what is the implied beta?
2. An investor owns a portfolio consisting of $450,000 of IBM shares and $550,000 of Apple shares. Apple shares have a market index beta of 1.2 whereas IBM shares have a market index beta of 0.9. The investor wishes to take a risk-minimizing hedge for this portfolio using S&P 500 index futures. The current futures prices for the S&P500 index is $2600.00 and the futures contract is for 10 units of the index. What position should the investor take in the futures contract. Please state your answer as the fractional number of contracts, and whether his/her position should be long or short.
3
A company has a £10 million portfolio with a beta of 0.8 to the stock market. The futures price for a contract on the stock market is 500. Futures contracts can be traded with value equal to £10 multiplied by the futures price. What position should one take in order to completely hedge the market risk? a. Short 2000 contracts b. Long 2000 contracts c. Short 1600 contracts d. Long 1600 contracts
Problem 1: Hedging market risk using S&P500 index futures Assume you have a portfolio worth currently $5,000,000. Let portfolio beta be ß, = 2. Assume you want to hedge market risk until 3 months from now.' Current value of S&P500 index futures 3 month from now is 3,900.00. You are using mini futures i.e. $50 per point. a) If you want to completely remove market risk without using futures. What would you do? b) If you use S&P500 mini futures, how many futures you would buy to completely hedge your exposure to market risk. c) What would be the value of your new (i.e. hedged) portfolio when S&P500 goes up by 2% 3 months from now? d) What would be the value of your new portfolio when S&P500 declines by 3% 3 months from now. e) What should you do in a) if you want to change the ß of your portfolio approximately to ß = 1? f) What should you do in b) if you want to change the ß of your portfolio approximately to B = 1?
The manager of a well-diversified portfolio with a market value of $200 million that mirrors the S&P 500 wants to hedge the portfolio against a market decline in value over the next six months. The portfolio manager wants to use the Mini-S&P 500 contract for hedging. The contract multiplier for this futures contract is $50. The futures price for the contract at the date that the hedge is put on is 4,200. a. Should the portfolio manager buy or sell the futures contract. Explain why. b. How many contracts should the portfolio manager sell or buy? c. Suppose at the delivery date (six months from now), the value of the S&P 500 is 3,800. Show what the outcome for this hedge will be.
The value of the S&P 500 index is 4,815. The continuously compounded risk - free rate is 5.5% and the continuous dividend yield is 1.1% . You consider trading 1 E- mini futures on the S&P 500 (symbol: ES) with a contract unit of $5 x S&P 500 Index listed on CME and 115- days to expiration. a. Calculate the no - arbitrage futures price of the position. b. Calculate the value of a long futures position after 46 days if the index value is $3,852.
Answer is mandatory A company has a $11 million portfolio with a beta of 1.5. Futures contracts on $250 times the index can be traded. The index future price is currently trading at $1100. What is the minimum variance hedge ratio? O 1.5 O 1.0 O 4.4