The portfolio that you manage is $600 million as follows:

Asset Allocation:60% equity, 40% fixed Income

Equity:IWM (Russell 2000) price = $234.33, beta 1.28

Fixed Income:All one bond 6% YTM, 9% coupon, 10 years semi, BBB credit, 3% reinvestment rate.

Equity futures:ES

Fixed Income Futures:ZB, duration 6

Target:90% equity, beta 1.5

Target:10% fixed income, 1 duration

Simulation:Stocks rise 1.5%

Simulation:Interest rates rise 40 bps

a. How many equity futures contracts are needed?

b. How many fixed income futures are needed?

c. What is the impact to the underlying portfolio?

d. What is the impact to the futures?

e. Want is the impact of the Desired?

f. What is your error?

Answer rating: 100% (QA)

Portfolio Management and Futures Analysis This scenario involves managing a portfolio and using futures contracts to achieve a target asset allocation ... View the full answer