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QUESTION 3 (20 marks) You are a reputable fund manager who manages Equity Excellent Fund. This objective of this Equity Excellent Fund is to invest in high risk global and local equities with the aim to generate competitive expected return. However, due to the high unemployment rate in the U.S. and pessimistic economic outlook, a recession is expected to happen next year. Now, you plan to change your investment strategy to reduce the beta of the stocks that you manage under the Equity Excellent Fund to 1.2. The fund size of the Excel Equity Fund is RM9 million and currently, the current beta of this fund is 1.8. Now is December 2019 and the Kuala Lumpur Composite Index (KLCI) is standing at 1589 points. (a) Followings are the quotes from Bursa Malaysia Derivatives: BURSA MALAYSIA DERIVATIVES (As on December 2019) Contract code: FKLI MONTH OPEN HIGH LOW LAST OI VOLUME Dec 2019 1592.50 1595.00 1590.00 1591.50 24099 7,968 Mar 2020 1450.50 1460.00 1448.00 1500.00 161 37 Jun 2020 1350.50 1391.50 1349.00 1391.50 36 6 Outline your strategy (state the position, number of contracts, which contract month, and the price of the contract) if you would like to reduce the risk you face until March 2020. [Note: use the future last price to calculate the number of contracts). (6 marks) QUESTION 3 (20 marks) You are a reputable fund manager who manages Equity Excellent Fund. This objective of this Equity Excellent Fund is to invest in high risk global and local equities with the aim to generate competitive expected return. However, due to the high unemployment rate in the U.S. and pessimistic economic outlook, a recession is expected to happen next year. Now, you plan to change your investment strategy to reduce the beta of the stocks that you manage under the Equity Excellent Fund to 1.2. The fund size of the Excel Equity Fund is RM9 million and currently, the current beta of this fund is 1.8. Now is December 2019 and the Kuala Lumpur Composite Index (KLCI) is standing at 1589 points. (a) Followings are the quotes from Bursa Malaysia Derivatives: BURSA MALAYSIA DERIVATIVES (As on December 2019) Contract code: FKLI MONTH OPEN HIGH LOW LAST OI VOLUME Dec 2019 1592.50 1595.00 1590.00 1591.50 24099 7,968 Mar 2020 1450.50 1460.00 1448.00 1500.00 161 37 Jun 2020 1350.50 1391.50 1349.00 1391.50 36 6 Outline your strategy (state the position, number of contracts, which contract month, and the price of the contract) if you would like to reduce the risk you face until March 2020. [Note: use the future last price to calculate the number of contracts). (6 marks)