You manage a $58 million stock portfolio with a beta 1.05. Given a contract size of $110,000 for a stock index futures contract with a beta of 1.0, calculate the number of contracts will you need to hedge your position.

You manage a $58 million stock portfolio with a beta 1.05. Given a contract size of $110,000 for a stock index futures contract with a beta of 1.0, calculate the number of contracts will you need to hedge your position.

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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You own a portfolio that has $2,650 invested in Stock A and $4,450 invested in Stock B. If the expected returns on these stocks are 8 percent and 11 percent, respectively, what is the expected return on the portfolio? Stock A value Stock B value Stock A E(R) Stock B E(R) Complete the following analysis. Do not hard code values in your calculations. Portfolio value Weight of A Weight of B $ 2,650 $ 4,450 8.00% 11.00% Portfolio E(R)
At time t=0 Mr. Anderson sets up a riskless portfolio by taking a position in an option and in the underlying asset. Explain what Mr. Anderson needs to do at time t=1 to keep his portfolio risk neutral and why. A stock price is currently $100 and at the end of four months it will be ST . A derivative written on this stock pays off expST1/3 in four months. Given that u = 1.15, d = 0.87, and that the risk-free interest rate is 10% p.a. (continuously compounded), answer the following questions using a one-period binomial model (show all the details of your calculations and display the results with four decimal places): Calculate the value of ∆ Calculate the current value of the derivative.
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A portfolio manager is wanting to add futures to an equity portfolio to change the beta of the overall portfolio. The following data is available: • Current Portfolio Beta: 0.25 • Current Portfolio Value: $10,000,000 • Current Futures Price: $2,500 • One contract is on $250x the index • Target Beta: 3.5 How many futures contracts should be added to the portolio to meet the target beta? Round to 0 decimal places.
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