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Calculate the effective beta portfolio

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Reference no: EM132578283

Question - Pension fund managers want to reduce the beta of the stock portfolio of small companies (small cap component) from 0.90 to 0.80 in the next 6 months. At present the portfolio has a market value of $ 485,000,000. The pension fund manager will use a futures contract that currently costs $ 249,000 in an effort to change the beta portfolio. This futures contract has a beta of 0.93

a. Does this investment firm take a buy or sell position in the futures market? How many contracts are needed?

b. At the end of the sixth month the overall equity market value dropped by 8.65 percent. The market value of the managed stock portfolio dropped 7.75 percent. The price of the futures contract offered fell by 8.05 percent to $ 228,956. Calculate the value of the overall position

c. Calculate the effective beta portfolio?

Reference no: EM132578283

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