An investment management firm wishes to increase the beta for one of its portfolios under management from
Question:
An investment management firm wishes to increase the beta for one of its portfolios under management from 1.1 to 1.50 for a six-month period. The portfolio has a market value of $120,000,000. The investment firm plans to use a futures contract priced at $105,790 in order to adjust the portfolio beta. The futures contract has a beta of 0.98.
Part A. Calculate the number of futures contracts that should be bought or sold to achieve an increase in the portfolio beta.
Part B. At the end of the three months, the overall equity market is up 5.5 percent. The stock portfolio under management is up 5.1 percent. The futures contract is priced at $111,500.
Calculate the value of the overall position and the effective beta of the portfolio.
Intermediate Financial Management
ISBN: 978-1111530266
11th edition
Authors: Eugene F. Brigham, Phillip R. Daves