A mutual fund manager anticipates shareholder redemptions of about $32 million per quarter as the market continues its slump over the next six months. She would like to hedge the future sale of stocks from the portfolio necessary to meet the redemptions, while maintaining the current characteristics of the fund. The portfolio is primarily composed of large-cap technology stocks. It has a high correlation with the Nasdaq 100 index, and the portfolio has a beta of 0.9 with this index. The manager plans to hedge using CME Nasdaq 100 futures. This contract has a multiplier of 100 and delivery months of March, June, September, and December. Contracts expire in the middle of the delivery month. Assume that the June Nasdaq 100 futures index value currently is 3,741 and the September Nasdaq 100 futures index value is 3,468. Suppose that today is late March. How many September Nasdaq 100 futures should the manager use in the hedge?
Number of September Nasdaq 100 futures to use = (value of portfolio to hedge * beta of portfolio) / (September Nasdaq 100 futures index value * contract multiplier)
Number of September Nasdaq 100 futures to use = ($32,000,000 * 0.9) / (3468 * 100)
Number of September Nasdaq 100 futures to use = 83.04
This is rounded off to 83
Number of September Nasdaq 100 futures to use = 83
A mutual fund manager anticipates shareholder redemptions of about $32 million per quarter as the market...
A fund manager has a portfolio worth $50 million with a beta of 0.87. The manager is concerned about the performance of the market over the next two months and plans to use three-month futures contracts on a well-diversified index to hedge its risk. The current level of the index is 1250, one contract is on 250 times the index, the risk-free rate is 6% per annum, and the dividend yield on the index is 3.15% per annum. The current...
A fund manager has a portfolio worth $75 million. The beta of the portfolio is 1.15. She plans to use 3-month futures contracts on S&P 500 to hedge the systematic risk over the next 2 months. The current 3-month futures price is 1315, and the multiplier of the futures contract is $250 times the index. How many futures contracts should the fund manager trade in?
2. An equity portfolio manager rarely if fully invested in the fund but will have some funds in cash. Unfortunate, this creates what is called a cash drag on the portfolio due to the low return on cash funds. On way to deal with this is called neutralizing cash. It involves using stock index futures to synthetically raise the equity position of the portfolio to overcome the cash drag. The portfolio currently has an asset value of $500 million. 95%...
how to calculate the answer 8? COMMODITY DERIVATIVES - Practice Problems one Raffi Musicale is the portfolio manager for a defined benefit pension plan. He meets with Brown market strategist with Menlo Bank to discuss possible investment opportunities. The investment committee for the pension plan has recently approved expanding the plan's permitted asset mix to include alternative asset classes Brown proposes the Apex Commodity Fund (Apex Fund) offered by Menlo Bank as a potential suitable investment for the pension plan....