How many put options should be purchased

Assignment Help Financial Management

Reference no: EM131905107

A portfolio manager in charge of a portfolio worth $25 million is concerned that the market might decline rapidly during the next six months and would like to use options on the S&P 100 to provide protection against the portfolio falling below$22 million.

The S&P 100 index is currently standing at 2500 and each contract is on 100 times the index.

a. If the portfolio has a beta of 1.0, how many put options should be purchased?

b. If the portfolio has a beta of 1.0, what should the strike prices of the put options be?

Reference no: EM131905107

Questions Cloud

Discuss why alcohol illegal and marijuana legal : If you had your choice between alcohol being legal and marijuana illegal as it is now or alcohol illegal and marijuana legal, which one would you choose.

Prepare the journal entry to record the issuance of bonds : Riverbed Co. is building a new hockey arena at a cost of $2,600,000. Prepare the journal entry to record the issuance of the bonds on January 1, 2016

What are the main assumptions of perfect competition : What are the main assumptions of perfect competition? In a monopoly, if a firm fixes the price, what determines the amount supplied?

How has the government helped small firms : How has the government helped small firms? How do small firms benefit an economy?. What is a market?

How many put options should be purchased : A portfolio manager in charge of a portfolio worth $25 million is concerned that the market might decline rapidly during the next six months.

Why has the small-firm sector of the economy grown : Give two examples of diseconomies of scale. Why has the small-firm sector of the economy grown in the 1980s and 1990s?

Difference between a cash dividend and a stock dividend : What is the difference between a cash dividend and a stock dividend? How do they effect the financial statements and which would you prefer to receive

How could the author improve the article : Write a 2-page paper critiquing the article on the above factors. Make specific recommendations with specific examples. Include a comprehensive analysis.

By how much will judys investment in portman be diluted : The company expects the coming year to be very profitable, and its dividend is expected to grow by 20% over the next year.

User Account

All Pages