Legs Diamond owns shares in Vanguard Index 500 mutual fund worth $1 million on july 15. (This is an index fund that tracks the Standard and Poor's 500 Index.) He wants to cash in now, but his accountant advises him to wait six months so as to defer a large capital gains tax. Explain to Legs how he can use stock index futures to hedge out his exposure to market movements over the next six months. Could Legs “cash in” without actually selling his shares?
Legs Diamond owns shares in Vanguard Index 500 mutual fund worth $1 million on july 15. (This is an index fund that tracks the Standard and Poor's 500 Index.) He wants to cash in now, but his accountant advises him to wait six months so as to defer a large capital gains tax. Explain to Legs how he can use stock index futures to hedge out his exposure to market movements over the next six months. Could Legs “cash in” without actually selling his shares?
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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Legs Diamond owns shares in Vanguard Index 500 mutual fund worth $1 million on july 15. (This is an index fund that tracks the Standard and Poor's 500 Index.) He wants to cash in now, but his accountant advises him to wait six months so as to defer a large capital gains tax . Explain to Legs how he can use stock index futures to hedge out his exposure to market movements over the next six months. Could Legs “cash in” without actually selling his shares?
Transcribed Image Text:Legs Diamond owns shares in Vanguard Index 500 mutual fund worth $1 million on July 15. (This is an index fund that tracks the Standard and
Poor"s 500 Index.) He wants to cash in now, but his accountant advises him to wait six months so as to defer a large capital gains tax. Explain to
Legs how he can use stock index futures to hedge out his exposure to market movements over the next six months. Could Legs "cash in"
without actually selling his shares?
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