Quality Investments has a $25 million portfolio with a beta of 1.4. Thefirm employs the E-mini Nasdaq-100 futures contract which has price of11,866 and one contract is on $20 times the Nasdaq-100 index. Howmany contracts are necessary to reduce the beta to 0.8 (round youranswer to the nearest whole number)?

We can determine the number of contracts required using the formula below:

Answered: Quality Investments has a $25 million…

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

See similar textbooks

Similar questions

The quoted rate of a short-term government security is 2%. A premium of 3% is added to the risk-free rate to reflect the average market return. What is the required rate of return of the portfolio?
You plan to invest in the Kish Hedge Fund, which has totalcapital of $500 million invested in five stocks given below: Kish’s beta coefficient can be found as a weighted average of its stocks’ betas. The risk-freerate is 6%, and you believe the following probability distribution for future market returnsis realistic:Probability Market Return0.1 228%0.2 00.4 120.2 300.1 50a. What is the equation for the security market line (SML)? (Hint: First, determine theexpected market return.)b. Calculate Kish’s required rate of return.c. Suppose Rick Kish, the president, receives a proposal from a company seeking newcapital. The amount needed to take a position in the stock is $50 million, it has anexpected return of 15%, and its estimated beta is 1.5. Should Kish invest in the newcompany? At what expected rate of return should Kish be indifferent to purchasingthe stock?
Suppose you had just gone long (purchased) on lot of Syarikat XYZ stock at a price of RM 15.00 each, for a total investment of RM 15,000. You believe this stock has long term potential but wish to protect yourself from any short-term downside movement in price. Suppose 3-month, at-the-money put options on Syarikat XYZ stocks are being quoted at RM 0.15 or 15 sen each or RM 150 per lot (RM 0.15 x 1,000). a. What would be the appropriate options strategy to hedge the long stock position? b. Show (in a table) the payoff to the combined position for a given range of stocks prices at options maturity in 3-months. c. Draw the payoff profile of combined positions.
Delta hedging. You own $35,000 shares of Saturn Ltd. common stock that is currently selling for $52. A call option on Saturn with a strike price of $52 is selling at $4.30 and has a delta of 0.54. a. Determine the number of call option contracts necessary to create a delta-neutral hedge (with sign!). Number contracts. Round your answer to closest integer. b. Calculate the total change in portfolio value for a $0.31 decrease in the price of Saturn stock, keeping in mind that you can only trade option contracts, not the individual options. $ Number Round your answer to the nearest cent.
An investor holds a diversified portfolio consisting of a P2,100 investment in each of 10 different common stocks. The portfolio beta is equal to 1.5. You have decided to sell one of your stocks, whose beta is equal to 1, for P2,100 and used the proceeds to buy different P2,100 of stock of a retail company whose beta is 1.2. What will be the new beta of the portfolio? (No rounding off until the final answer)
On July 1, an investor holds 50000 shares of a certain stock. The market price is $50 per share. The investor is interested in hedging against movements in the market over the next month and decides to use the September Mini S&P 500 futures contract. The index is currently 1500 and one contract is for delivery of $50 times the index. The beta of the stock is 1.5. What strategy should the investor follow? Under what circumstances will it be profitable?
You have a $5 million portfolio consisting of a $250,000 investment in each of 20 different stocks. The portfolio has a beta of 1.2. You are considering selling $500,000 worth of one stock with a beta of 0.8 and using the proceeds to purchase another stock with a beta of 1.6. What will the portfolio’s new beta be after these transactions? Im stuck
A pension fund currently has $50 million in the S&P 500 index and $50 million in Treasury bills (risk-free asset). The current 6-month S&P 500 futures price is 1390.5, and one contract is on $250 times the index. a) Suppose that the manager is concerned about the performance of the index over the next 6 months. Explain what position in the S&P 500 futures he should take to eliminate all exposure to the market over the next six months. b) If the manager decides to switch to a portfolio that invests 30% in the index and 70% in T-bills for a period of 6 months, explain how he could achieve that using S&P 500 futures.
Your client, Sandra is considering three assets: a bond mutual fund, a cryptocurrency ETF, and US Treasury bills. The annualized T-bill rate is 2%. The information below refers to the two risky assets. Expected return Standard deviation Bond mutual fund Cryptocurrency ETF 3% 10% Correlation coefficient 0 14% 20% (a) What are the proportions of each asset, in Sandra's optimal risky portfolio? (b) Suppose the return for each risky asset follows a normal distribution. What is the 1% value-at-risk for Sandra's optimal risky portfolio? Hint: P(Z<-2.326) = 0.01 where Z~N(0, 1).
You have 4 types of assets in your portfolio: Corporate bonds earn 2% return and make up 5% of your portfolio Large cap stocks earn 15% return and make up 50% of your portfolio Government bonds earn 9% return and make up 25% of your portfolio International stocks earn 7% return and make up 20% of your portfolio What is the average rate of return on your portfolio? Find the weighted average of the returns. Enter your answer as two decimal places and do not include the percent sign.
You own 1,000 shares of Apple. Apple has a monthly beta of 1.28 to the S&P500 Index. The current 3-month e-mini S&P 500 Future is trading at 4,038.5; the contract unit is $50 * S&P 500 index value (so each contract is worth $50*4038.5). You have a negative view about the market and think Apple price would go down; you want to hedge that exposure. 1. How many e-mini S&P 500 Future do you need to hedge your Apple exposure? 2. Do you short/long these future contracts?
To set up a $17,600 portfolio, Yolanda Kettle can invest in Kroger, E(R) = 10.1%, and in Logitech, E(R) = 13.7%. How much will Yolanda allocate to Kroger if she wants her portfolio to have an E(R) = 11.1%? a. $12,711.11 b. $6,518.52 c. $4,888.89 d. $11,651.85 e. $4,277.78

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS