You have a $6,000,000 portfolio that has a beta of 1.7 to the S&P 500. You have
Fantastic news! We've Found the answer you've been seeking!
Question:
You have a $6,000,000 portfolio that has a beta of 1.7 to the S&P 500. You have decided you want to hedge this portfolio over the next 12 months. The 13-month S&P 500 futures price is $4500, and the current S&P 500 index value is $4450. The 12-month continuously compounded risk-free rate is 1% and the annual dividend yield on the S&P 500 is 2%. As a reminder, futures contracts are based on $250 multiplied by the index value.
a) What position in futures contracts will you need to hedge your portfolio?
- b) Now check to see if your answer to part a) hedges your position effectively or not.
- Find the value of your portfolio in one year (including the futures position) if the S&P drops to $2100, if it drops to $4300, and if it increases to $6200.
- For these three scenarios, assume that one year from today, the S&P 1-month futures price will be $2107, $4308, and $6212, respectively.
Related Book For
Posted Date: