Question

Suppose that a portfolio is worth $832 million and the S&P500 Index is currently at 1804....

Suppose that a portfolio is worth $832 million and the S&P500 Index is currently at 1804. If the value of the portfolio replicates the value of the index (Beta = 1.25), what options should be invested in to provide insurance against the value of the portfolio falling below $800 million in the time period of 1 year?

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
An investor's portfolio with a beta of 1.25 is worth $1 million. The current S&P500 price...
An investor's portfolio with a beta of 1.25 is worth $1 million. The current S&P500 price is $1500. The current futures price on the S&P500 (each contract is on $250 times the index) is $1800. Next period, the S&P500 is priced at $1250 and the futures price on the index is $1500. What is the final value of the portfolio after the hedging process? Enter numeric value without the '$' symbol.
An investor's portfolio with a beta of 1.25 is worth $1 million. The current S&P500 price...
An investor's portfolio with a beta of 1.25 is worth $1 million. The current S&P500 price is $1500. The current futures price on the S&P500 (each contract is on $250 times the index) is $1800. Next period, the S&P500 is priced at $1250 and the futures price on the index is $1500. What is the final value of the portfolio after the hedging process? Enter numeric value without the '$' symbol.
A portfolio manager in charge of a portfolio worth $10 million is concerned that the market...
A portfolio manager in charge of a portfolio worth $10 million is concerned that the market might decline rapidly during the next six months and would like to use options on the S&P 100 to provide protection against the portfolio falling below $9.5 million. The S&P 100 index is currently standing at 500 and each contract is on 100 times the index. If the portfolio has a beta of 0.5 and the interest rate is 10%, how many put options...
An investor's portfolio with a beta of 1.50 is worth $1 million. The S&P500 price changes...
An investor's portfolio with a beta of 1.50 is worth $1 million. The S&P500 price changes from $2000 to $1800. The price on the S&P500 futures (each contract is on $50 times the index) changes from $2400 to $2100. What is the dollar value of gains/losses made on futures using the hedging strategy. (Calculate only the amount gained or lost through the change in the futures price) (Round to the nearest whole dollar amount. Enter only the numeric portion of...
Ch 24: An investor's portfolio with a beta of 1.25 is worth $1 million. The current...
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...
Suppose that a portfolio is worth $600 million. The beta of the portfolio is 1.5. The...
Suppose that a portfolio is worth $600 million. The beta of the portfolio is 1.5. The portfolio manager would like to use the CME December futures contract on the S&P 500 to change the beta of the portfolio to 0.5. The index is currently 2,400, and each contract is $250 times the index. 1. What is the future position required to reach this goal? 2.Long or short? 3.How many contracts?
It is July 16. A company has a portfolio of stocks worth £30 million. The beta...
It is July 16. A company has a portfolio of stocks worth £30 million. The beta of the portfolio is 1.0. The company would like to use the December futures contract on a stock index to change beta of the portfolio to zero during the period July 16 to November 16. The index is currently 1,250, and each contract is on £250 times the index. (a) What position should the company take? [6 marks] (b) If the company instead wants...
It is February 16. A company has a portfolio of stocks worth $100 million. The beta...
It is February 16. A company has a portfolio of stocks worth $100 million. The beta of the portfolio is 1.3. The company would like to use the July futures contract on a stock index to change the beta of the portfolio to 0.5 during the period February 16 to June 16. The index futures price is 2,000, and each contract is on $250 times the index. a. What position should the company take in the futures contract in order...
The followings are the information related to S&P index option •      SP500 index (ticker symbol SPX)...
The followings are the information related to S&P index option •      SP500 index (ticker symbol SPX) = 2500 •      SP500 Dec call with an exercise price 2450 = $70 •      SP500 Dec put with an exercise price 2450 = $12 •      Each option has a multiplier of $100 (or each contract has a multiplier of $100) Jenny Smith is a money manager. Her portfolio of stocks tracks S&P500 index. The market value of the portfolio is $300 million. While not...
A manager is holding a $1.25 million stock portfolio with a beta of 1.17. She would...
A manager is holding a $1.25 million stock portfolio with a beta of 1.17. She would like to hedge the risk of the portfolio using the S&P 500 stock index futures contract. How many dollars’ worth of the index should she sell in the futures market to minimize the volatility of her position? (Enter your answer in dollar not in millions.) Dollars worth of index to be sold? Show your work with formulas in Excel