Question

An investor owns a $250,000 equity portfolio with a beta of 1.25. The S&P 500 index is currently 2,000, the risk-free interest rate is 4% per annum, and the dividend yield on the index is 2% per annum.

(a) If the index increases to 2,200 over the next six months, what is the expected percentage return on the equity portfolio?

(b) Futures contracts (for 100 times the index) are currently priced at 2,100. How could the investor hedge the portfolio to essentially eliminate market risk?

Answer #1

The S&P 500 Index is currently
at 1,800. You manage a $9m indexed equity portfolio. The S&P
500 futures contract has a multiplier of $250.
If you are temporarily bearish on the stock market, how many
contracts should you sell to fully eliminate your exposure over the
next six months?
If T-bills pay 2% per six months and the semiannual dividend
yield is 1%, what is the parity value of the futures price?
Show that if the contract is fairly...

The S&P 500 Index is currently at 2,000. You manage a $15
million indexed equity portfolio. The S&P 500 futures contract
has a multiplier of $50.
a. If you are temporarily bearish on the stock market, how many
contracts should you sell to fully eliminate your exposure over the
next six months?
b. If T-bills pay 1.8% per six months and the semiannual
dividend yield is 1.6%, what is the parity value of the futures
price? (Do not round intermediate...

An investor wants to minimize market risk on a $50 million stock
portfolio by using futures for hedging. The portfolio’s beta with
respect to the S&P 500 equity index is 1.25. The current index
futures quote is 2,875 and each contract is for delivery of $250
times the index.
a. What futures position should the investor open to execute the
hedge? Long or short?
b. How many index futures contracts does the investor need to
use to minimize market risk?...

Suppose the S&P 500 currently has a level of 960. One
contract of S&P 500 index futures has a size of $250× S&P
500 index. You wish to hedge an $800,000-portfolio that has a beta
of 1.2.
(A)In order to hedge the risk of your portfolio, should you long
the futures or short the futures? Why?
(B)How many S&P 500 futures contracts should you trade to
hedge your portfolio?

Ch 24: An investor's portfolio with a beta of 1.25 is worth $1
million. The current S&P500 price is $1500. The current price
on the S&P500 futures (each contract is on $250 times the
index) is $1800. How many futures contracts will the investor need
and what position will he/she take to completely hedge away the
market's impact on the portfolio?
Short 3 shares of the S&P500 index
Long 3 S&P500 futures contracts
Short 3 S&P500 futures contracts
Long 3...

A fund manager has a portfolio worth $100 million with a beta of
0.88. the manager is concerned about the performance of the market
over the next 2 months and plans to use 3-month futurescontracts on
the S&P 500 to hedge the risk. The current level of the index
is 2600, one contract is on 250 times the index, the risk free rate
is 3% per annum, and the dividend yield on the index is 2% per
annum.
(a) Calculate...

The S&P 500 is currently valued at $2,700 and the 1-year
Mini Future contract has a price of $2,767. The risk free rate is
2.5% per annum and the S&P 500 dividend yield is 0.5% per
annum. You are managing a portfolio that is worth $10 million and
has a beta of 1.75. (Remember E-mini S&P 500 Future contracts
are 50 x price)
a. What position in futures contracts on the S&P 500 is
necessary to hedge the portfolio?
b....

An equity fund manager has a portfolio of stocks worth USD 170
million. The beta of the portfolio is 1.0. In early July, the fund
manager would like to use September futures contract on the S&P
500 to change the beta of the portfolio to 2.0. The index futures
price is 1,000 and each contract is on USD 250 times the index.
Which of the following statements is most accurate?
Group of answer choices
The fund manager needs to long...

Suppose that an investor is holding an equity portfolio that is
worth $700,000 and has a beta of 1.4 from which the expected return
is 12% per annum. The investor would like to purchase $500,000 of
units in a hedge fund that has a beta of 0.6 from which a return of
4% per annum is expected. The total value of the new portfolio is
__________. The weight in the hedge fund in the new portfolio is
__________. The beta...

The S&P 500 is currently valued at $2,700 and the 1-year
Mini Future contract has a price of $2,767. The risk free rate is
2.5% per annum and the S&P 500 dividend yield is 0.5% per
annum. You are managing a portfolio that is worth $10 million and
has a beta of 1.75. (Remember Emini S&P 500 Future contracts
are 50 x price) What position in futures contracts on the S&P
500 is necessary to hedge the portfolio so our...

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