On the 14th of September 2023, an investor holds the stock portfolio that consists of Apple stocks
Question:
On the 14th of September 2023, an investor holds the stock portfolio that consists of Apple stocks solely. The current market value of the portfolio is $374,000. After the rapid rise of Apple stock price during the first half of this year, the investor has begun to suspect that Apple stock might have become already too expensive and therefore, she decides to hedge her stock portfolio against price decline of Apple stock for six months by using forward contracts on the underlying stock. The expiration date for the above-mentioned forwards on Apple stock is 2024/03/14.
Suggest the optimal hedging position by using the above-mentioned forward contracts when their current bid and ask prices are $192.60 and $194.00, and the corresponding spot prices are $187.00 and $188.00.
a) What is the value of hedging position at the end of the maturity of the contracts if Apple stock price is then $150.00? Assume that no dividends are paid before the expiration of the forward contracts.
b) What is the value of the investor’s whole portfolio (stocks + credit or debit from the clearing of the forward position) in the expiration date?
Smith and Roberson Business Law
ISBN: 978-0538473637
15th Edition
Authors: Richard A. Mann, Barry S. Roberts