The Hamtramck portfolio with a 3 beta of 1.14 is valued at $7,875,000. You are worried...
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The Hamtramck portfolio with a 3 beta of 1.14 is valued at $7,875,000. You are worried about market volatility for the next six months. To hedge S&P 500 index futures for 6 months is available. Currently the futures contract is traded at a price of 4,500. Mini stock index futures are valued at $50 times the index value. (Points: 1+2+2+1) a. What do you recommend: a short hedge or a long hedge? b. How many contracts are needed for a full hedge? c. Hamtramck portfolio would like to change its ß beta to as risky as the market-no more or less. How many contracts would be needed to do so? d. What type of hedge would that be: Long or Short? The Hamtramck portfolio with a 3 beta of 1.14 is valued at $7,875,000. You are worried about market volatility for the next six months. To hedge S&P 500 index futures for 6 months is available. Currently the futures contract is traded at a price of 4,500. Mini stock index futures are valued at $50 times the index value. (Points: 1+2+2+1) a. What do you recommend: a short hedge or a long hedge? b. How many contracts are needed for a full hedge? c. Hamtramck portfolio would like to change its ß beta to as risky as the market-no more or less. How many contracts would be needed to do so? d. What type of hedge would that be: Long or Short?
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