A mutual fund manager anticipates shareholder redemptions of about $29 million per quarter as the market continues
Question:
A mutual fund manager anticipates shareholder redemptions of about $29 million per quarter as the market continues its slump over the next six months. She would like to hedgethe future sale of stocks from the portfolionecessary to meet the redemptions, while maintaining the current characteristics of the fund. The portfolio is primarily composed of large-cap technology stocks. It has a high correlation with the Nasdaq 100 index, and the portfolio has a beta of 1.1 with this index. The manager plans to hedge using CME Nasdaq 100 futures. This contract has a multiplier of $100 and delivery months of March, June, September, and December. Contracts expire in the middle of the delivery month. Assume that the June Nasdaq 100 futures index value currently is 3,790 and the September Nasdaq 100 futures index value is 3,300.Suppose that today is late March.How many September Nasdaq 100 futures should the manager use in the hedge?
Personal Finance Turning Money into Wealth
ISBN: 978-0134730363
8th edition
Authors: Arthur J. Keown