An investor owns a portfolio consisting of $450,000 of IBM shares and $550,000 of Apple shares....
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An investor owns a portfolio consisting of $450,000 of IBM shares and $550,000 of Apple shares. Apple shares have a market index beta of 1.2 whereas IBM shares have a market index beta of 0.9. The investor wishes to take a risk-minimizing hedge for this portfolio using S&P 500 index futures. The current futures prices for the S&P500 index is $2600.00 and the futures contract is for 10 units of the index. What position should the investor take in the futures contract. Please state your answer as the fractional number of contracts, and whether his/her position should be long or short. An investor owns a portfolio consisting of $450,000 of IBM shares and $550,000 of Apple shares. Apple shares have a market index beta of 1.2 whereas IBM shares have a market index beta of 0.9. The investor wishes to take a risk-minimizing hedge for this portfolio using S&P 500 index futures. The current futures prices for the S&P500 index is $2600.00 and the futures contract is for 10 units of the index. What position should the investor take in the futures contract. Please state your answer as the fractional number of contracts, and whether his/her position should be long or short.
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Step 1 Hedging is a technique used to protect against the loss of Individual securities by trading i... View the full answer
Related Book For
Federal Taxation 2016 Comprehensive
ISBN: 9780134104379
29th edition
Authors: Thomas R. Pope, Timothy J. Rupert, Kenneth E. Anderson
Posted Date:
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