Question

Northern States Life Insurance Company has a $14 million stock portfolio. The company is very aggressive and the portfolio has a weighted beta of 1.30.
a. Assume they use S&P 500 Index futures contracts to hedge the portfolio for the next 90 days and the contracts can be sold at 1,290. The contracts have a multiplier of 250. With the appropriate beta adjustment factor, how many contracts should be sold? Round the final answer to the nearest whole number.
b. If Dow Jones (DJ) Industrial Average contracts selling at 11,150 were used instead, how many contracts should be sold? These contracts have a multiplier of 10. Once again, consider the appropriate beta adjustment factor and round your final answer to the nearest whole number.


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  • CreatedSeptember 21, 2015
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