i.On April 1, an investor holds 40,000 shares of a certain stock. The market price is $28 per share. The investor is interested in completely hedging against movements in the market over the next month and decides to use the June Mini S&P 500 futures contract. The index is currently 4,500 and one contract is for delivery of $50 times the index. If the beta of the stock is 1.2, what strategy should the investor follow to completely hedge their stock portfolio? ii. After a month, the investor wishes to partially unwind their hedge to reach an overall target beta of 1. Using your answer from above, what strategy should the investor follow to reach their target? They still hold 40,000 shares and the market price is now $27.5 per share. The June Mini S&P Futures index is still at 4,500 and one contract for delivery is of $50 times the index. What will be the residual remaining position in their futures contracts?
i.On April 1, an investor holds 40,000 shares of a certain stock. The market price is $28 per share. The investor is interested in completely hedging against movements in the market over the next month and decides to use the June Mini S&P 500 futures contract. The index is currently 4,500 and one contract is for delivery of $50 times the index. If the beta of the stock is 1.2, what strategy should the investor follow to completely hedge their stock portfolio?
ii. After a month, the investor wishes to partially unwind their hedge to reach an overall target beta of 1. Using your answer from above, what strategy should the investor follow to reach their target? They still hold 40,000 shares and the market price is now $27.5 per share. The June Mini S&P Futures index is still at 4,500 and one contract for delivery is of $50 times the index. What will be the residual remaining position in their futures contracts?
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