Suppose you have a portfolio of stocks and think the market will go down over the...
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Suppose you have a portfolio of stocks and think the market will go down over the period of investment. You would like to hedge the market downside risk using one E-mini S&P 500 futures contract, which currently have a quoted price of 4140. • The contract unit is $50 * S&P 500 Index. • Your broker currently requires $12,000 per contract as initial margin requirement and $10,000 per contact as maintenance margin. The balance of your margin account is $12,000. .a. Should you go long or short on the futures contracts? • b. Given your answer in part (a), what is the profit/loss for one contract if the price of the futures contracts decreases to 4110? • c. Given your answer in part (a), what change in the futures price will lead to a margin call? 18 Suppose you have a portfolio of stocks and think the market will go down over the period of investment. You would like to hedge the market downside risk using one E-mini S&P 500 futures contract, which currently have a quoted price of 4140. • The contract unit is $50 * S&P 500 Index. • Your broker currently requires $12,000 per contract as initial margin requirement and $10,000 per contact as maintenance margin. The balance of your margin account is $12,000. .a. Should you go long or short on the futures contracts? • b. Given your answer in part (a), what is the profit/loss for one contract if the price of the futures contracts decreases to 4110? • c. Given your answer in part (a), what change in the futures price will lead to a margin call? 18
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Answer rating: 100% (QA)
a In order to hedge the market downside risk you should go long on the Emini SP 500 futures contract ... View the full answer
Related Book For
Fundamentals of Investing
ISBN: 978-0133075359
12th edition
Authors: Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk
Posted Date:
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