The expected annual return of Apple Inc. stock is 8%. The annual risk-free rate is 4%. If a company holding a portfolio of Apple Inc. stock worth $9,000,000 today is required to use 30 Futures contracts written on the stock index to fully hedge its exposure, what is the annual expected return of the stock market index? Assume the index futures price is $4,000 currently and each Futures contract is written on 150 times the stock market index. Assume the Capital Asset Pricing Model (CAPM) holds.

Answer rating: 100% (QA)

To find the annual expected return of the stock market index we can use the Capital Asset Pricing Mo... View the full answer