An investor wants to minimize market risk on a $50 million stock portfolio by using futures for
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An investor wants to minimize market risk on a $50 million stock portfolio by using futures for hedging. The portfolio’s beta with respect to the S&P 500 equity index is 1.25. The current index futures quote is 2,875 and each contract is for delivery of $250 times the index.
- What futures position should the investor open to execute the hedge? Long or short?
- How many index futures contracts does the investor need to use to minimize market risk?
- To reduce portfolio beta to 0.625, how many contracts does the investor need use?
Related Book For
Fundamentals of Financial Management
ISBN: 978-1305635937
Concise 9th Edition
Authors: Eugene F. Brigham
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