What futures position should paula take today

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It is June 2nd 2010 and Paula has a diversified portfolio of shares (with a of 1) currently worth $482,000. Although she believes the stock market will ease throughout July, she does not wish to liquidate this portfolio, but rather to hedge its value using SPI200 futures contracts. Currently, the ASX200 index stands at 4820 while the July 2010 and August 2010 SPI200 contracts are trading for 4830 and 4836 respectively.

i) What futures position should Paula take today in order to protect (hedge) her investment?

ii) If on July 31st the ASX200 index is 4370 and August SPI200 contracts are trading at 4380, calculate Paula's profit or loss on the FUTURES position you outlined in part (i)

iii) What is the dollar value of Paula's combined investments on July 31st? [Recall that SPI futures are valued at $25 times the index.]

Reference no: EM132341461

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