b) A superfund manager currently manages a diversified Australian shares portfolio wit a value of $300 million. The manager decides to use the ASX SPI 200 index futures t hedge a forecasted decline in share prices. As an analyst in the team, you hav calculated that the share portfolio requires 2100 futures contract to manage the ris exposure. Assuming S&P/ASX 200 index is currently at $5,500 and one index point i $25. (i) Explain to your manager the action your team should take in future contracts and the total value of futures contracts (ii) In three months' time, the manager decides to close out the hedging position. Assuming the S&PIASX 200 index is at $5,150 at that time. Explain bow vou will close out the onen position and show the pet
b) A superfund manager currently manages a diversified Australian shares portfolio wit a value of $300 million. The manager decides to use the ASX SPI 200 index futures t hedge a forecasted decline in share prices. As an analyst in the team, you hav calculated that the share portfolio requires 2100 futures contract to manage the ris exposure. Assuming S&P/ASX 200 index is currently at $5,500 and one index point i $25. (i) Explain to your manager the action your team should take in future contracts and the total value of futures contracts (ii) In three months' time, the manager decides to close out the hedging position. Assuming the S&PIASX 200 index is at $5,150 at that time. Explain bow vou will close out the onen position and show the pet
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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Transcribed Image Text:b) A superfund manager currently manages a diversified Australian shares portfolio with
a value of $300 million. The manager decides to use the ASX SPI 200 index futures to
hedge a forecasted decline in share prices. As an analyst in the team, you have
calculated that the share portfolio requires 2100 futures contract to manage the risk
exposure. Assuming S&P/ASX 200 index is currently at $5,500 and one index point is
$25.
(i)
Explain to your manager the action your team should take in futures
contracts and the total value of futures contracts
(ii) In three months' time, the manager decides to close out the hedging
position. Assuming the S&PIASX 200 index is at $5,150 at that time.
Explain how you will close out the open position and show the net
valuation effect of the hedging strategy.
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