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Assume that the Index is currently at 2,000. You manage a $10 million indexed equity portfolio. The Index futures contract has a multiplier of $50. A) If you are temporarily bearish on the stock market, how many contract should you sell to fully eliminate your exposure over the next six months? B) If T-bills pay 2% per six months and the semiannual dividend yield is 19%, what is the parity value of the futures price?

Assume that the Index is currently at 2,000. You manage a $10 million indexed equity portfolio. The Index futures contract has a multiplier of $50. A) If you are temporarily bearish on the stock market, how many contract should you sell to fully eliminate your exposure over the next six months? B) If T-bills pay 2% per six months and the semiannual dividend yield is 19%, what is the parity value of the futures price?

Essentials Of Investments
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
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Assume that the Index is currently at 2,000. You manage a $10 million indexed equity portfolio. The Index futures contract has a multiplier of $50. A) If you are temporarily bearish on the stock market, how many contract should you sell to fully eliminate your exposure over the next six months? B) If T-bills pay 2% per six months and the semiannual dividend yield is 1%, what is the parity value of the futures price? Explain with each step and proper formatting.
Transcribed Image Text:Assume that the Index is currently at 2,000. You manage a $10 million indexed equity portfolio. The Index futures contract has a multiplier of $50. A) If you are temporarily bearish on the stock market, how many contract should you sell to fully eliminate your exposure over the next six months? B) If T-bills pay 2% per six months and the semiannual dividend yield is 1%, what is the parity value of the futures price? Explain with each step and proper formatting.
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