Suppose you are managing a well-diversified portfolio of $200 million of U.S. stocks with the market...

 

Transcribed Image Text:

Suppose you are managing a well-diversified portfolio of $200 million of U.S. stocks with the market risk of (B= 0.98). Suppose market declines by 15%. Calculate your loss (in dollars) and the value of your portfolio after 15% decline (calculate the portfolio value in dollars after market decline). You are worry about the stock market decline and decide to hedge 45% of your portfolio by using futures contracts on S&P 500 index. The S&P index is currently standing at 2950. Futures contracts on $250 time the index can be traded. Calculate number of futures contracts that should be traded, and indicate whether the position in futures is long or short Os. N*= OF Formulas: h*=p- A(re) = ß ; F₁,7=Søe(r-a)T; A (market) h*xVP; N° = BP FX QF mxn 2 = (1+ APR) - 1; N -1; m EAR VE F F ( § ) = So (§ )e('s-¹e)¹ ; F = (So + U)e²T ; -re)T. F = SoerT; F = (S₁-1) erT; N* = PxDp; FCXDF AP=-PxDpx Ay; C=r_q+u; C = r₁-rg; AFC =-FcxDxAy; F = (S₁)e(r+u-y)T; SXQAN* = PP 12 = P -; VF = Fx250; A n1 112 -1 xn₂; Rc ; Re-mix (1 + R) m =m In 1+ m N = (B - B *) P/A.; N = (ß * -B ) P/A; b=S₁-F₁ Suppose you are managing a well-diversified portfolio of $200 million of U.S. stocks with the market risk of (B= 0.98). Suppose market declines by 15%. Calculate your loss (in dollars) and the value of your portfolio after 15% decline (calculate the portfolio value in dollars after market decline). You are worry about the stock market decline and decide to hedge 45% of your portfolio by using futures contracts on S&P 500 index. The S&P index is currently standing at 2950. Futures contracts on $250 time the index can be traded. Calculate number of futures contracts that should be traded, and indicate whether the position in futures is long or short Os. N*= OF Formulas: h*=p- A(re) = ß ; F₁,7=Søe(r-a)T; A (market) h*xVP; N° = BP FX QF mxn 2 = (1+ APR) - 1; N -1; m EAR VE F F ( § ) = So (§ )e('s-¹e)¹ ; F = (So + U)e²T ; -re)T. F = SoerT; F = (S₁-1) erT; N* = PxDp; FCXDF AP=-PxDpx Ay; C=r_q+u; C = r₁-rg; AFC =-FcxDxAy; F = (S₁)e(r+u-y)T; SXQAN* = PP 12 = P -; VF = Fx250; A n1 112 -1 xn₂; Rc ; Re-mix (1 + R) m =m In 1+ m N = (B - B *) P/A.; N = (ß * -B ) P/A; b=S₁-F₁

Answer rating: 100% (QA)

a Computation of loss and the value of portfolio after 15 decli... View the full answer