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.
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.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Transcribed Image Text: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.
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