Calculating Number of Contracts Required,
N = (0.67 - 1.34)(100,000,000/(250*40,000))
N = -6.7
So, one needs to short 7 contracts to reduce beta to half
2. An equity portfolio is worth $100 million with the benchmark of the Dow Jones Industrial Average. The Dow is cur...
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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?
4. An investor has a portfolio of stocks worth $9.45 million. The portfolio beta is 0.85. The investor plans to use the CME September futures contract on the S&P 500 to change the market risk of the portfolio. The index futures price is currently 2674.90. (The payoff on of each futures contract is based on $250 times the S&P 500 index.) a. What position should the company take to minimize the portfolio’s risk relative to the market? b. What position...
9. A portfolio manager has an equity portfolio that is valued at $75 million. The portfolio has a current beta of .9 and a dividend yield of 1%. It is currently August 15 and the manager is concerned that markets are volatile and the portfolio could lose value, so they decide to hedge. a. The manager will use the S&P 500 index contracts to hedge. The contract is settled in cash at $250 times the contract price. The current S&P...
doud 22. Excess return portfolio performance measures Adjust portfolio risk to match benchmark risk. Compare portfolio returns to expected returns under CAPM. Evaluate portfolio performance on the basis of return per unit of risk. Indicate historic average differential return per unit of historic variability of differential return. None of the above. 23 An example of a market cap weighted stock market indicator series is the a. Dow Jones Industrial Average. b. Nikkei Dow Jones Average. c. S&P 500 Index. d....
9. A portfolio manager has an equity portfolio that is valued at $75 million. The Portfolio has a current beta of .9 and a dividend yield of 1%. It is currently August 15 and the manager is concerned that markets are volatile and the portfolio could lose value, so they decide to hedge. a. The manager will use the S&P 500 index contracts to hedge. The contract is settled n cash at $250 times the contract price. The current S&P...
Assume you have a $500,000,000 portfolio: 50% equity with a beta of 1.2, and 50% fixed income, corporate bonds, average credit quality of BBB, duration of 5. You wish to design a portfolio: 75% equity asset allocation, beta 1.6, fixed income 25% asset allocation, duration 3. The available futures are: equity index 2,000, multiplier 250, fixed income Tbond $100,000 par, 97 price, 2 duration. The simulation is that in one day the market appreciates by 1.5% and the interest rates...
Assume you have a $500,000,000 portfolio: 50% equity with a beta of 1.2, and 50% fixed income, corporate bonds, average credit quality of BBB, duration of 5. You wish to design a portfolio: 75% equity asset allocation, beta 1.6, fixed income 25% asset allocation, duration 3. The available futures are: equity index 2,000, multiplier 250, fixed income T-bond $100,000 par, 97 price, 2 duration. The simulation is that in one day the market appreciates by 1.5% and the interest rates...
You are managing a portfolio of common stocks with a current market value of $100 million. You have decided to hedge the price risk for approximately half of the portfolio using CME S&P 500 stock index futures contracts because you believe half of your portfolio's market value moves comparably with this index. Assume the CME S&P 500 stock index futures contract costs $250 per contract times the stated stock market index level. If you agree to sell futures contracts on...
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%...