Holding period return on your overall hedged portfolio

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Reference no: EM131560436

You hold a well diversified portfolio of stocks valued at $10 million whose beta is equal to 1.5. You intend to use S&P 500 futures to decrease the effective beta of your portfolio down to 0.5. The multiplier for S&P 500 contracts is $250 and the index is currently at 2,399 (futures price). Will you buy or sell futures contracts? How many contracts (report fractional contracts)? Assuming S&P 500 drops by 10% by the expiration date, please find (a) the new value of your stocks, (b) profit/loss on the futures position, (b) the new value of your overall hedged portfolio, and (c) the holding period return on your overall hedged portfolio.

Reference no: EM131560436

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