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:3. On December 1, an investor holds 50,000 shares of a certain stock. The market price is $30 per
share. The investor is interested in hedging against movements in the market over the next
month an decides to use an index futures contract. The index futures price is currently 1,500
and one contract is for delivery of $50 times the index. The beta of the stock is 1.3. What
strategy should the investor follow? Under what circumstances will it be profitable?
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