What position is needed to hedge the portfolio

Assignment Help Financial Accounting
Reference no: EM132997692

Question - S&P 500 index is currently priced at 1,000. A futures contract on the S&P 500 index is currently priced at 1,010. Each futures contract is on $250 times the index price. The dividend yield on the index is 0.25% per year. The risk free rate is 1% per year. The value of a portfolio is currently worth $5,050,000 and the beta of this portfolio is 1.5. The portfolio manager wants to hedge this portfolio for 1 year using the above futures contract on the S&P500 index. What position is needed to hedge the portfolio?

a. Short 30 contracts

b. Short 50 contracts

c. Long 30 contracts

d. Long 50 contracts

Reference no: EM132997692

Questions Cloud

ICT393 Advanced Business Analysis and Design Assignment : ICT393 Advanced Business Analysis and Design Assignment Help and Solution, Murdoch University - Assessment Writing Service
What is the value of the shares : Its last dividend was worth $2.50. What is the value of the shares if Amy's required rate of return for the shares is 11% per year
Calculate the price of the bond : The Bluestar company raised $1m through a 10-year bond issue on the 31st of December 2019. Calculate the price of the bond
Discuss the classification of the preference shares : Discuss the classification of the preference shares in the records of McLane. Refer to the definitions of equity and a financial liability
What position is needed to hedge the portfolio : The portfolio manager wants to hedge this portfolio for 1 year using above futures contract on the S&P500 index. What position is needed to hedge the portfolio
What are your conclusions on classification rates : What are your conclusions on classification rates? You may want to make a movie to demo your results using Matlab, Python or other software tools
What is the variable cost per copy : In April, they paid $400 for 3,000 copies. What is the variable cost per copy if GEM uses the high-low method to analyze costs
Explain the likely cause of the event : Explain the likely cause of the event and why the indicated symptoms would be observed.
What is the company break-even point in units : Micol & Co. Ltd sells a single product, baby hamper, with a selling price of $150. What is the company break-even point in units

Reviews

Write a Review

Financial Accounting Questions & Answers

  What is the companys cost of goods sold

Tropic Resources, Inc. reports net sales of $1,500,000; a gross profit of $650,000; and net income of $90,000. What is the company's cost of goods sold?

  What is the current price of the preferred stock given

What is the current price of this preferred stock given a required rate of return of 10.0 percent? (Round answer to 2 decimal places, e.g. 15.25.)

  Discuss how to compute earnings and profits

Can you discuss how to compute earnings and profits (E&P)? - What income is deferred to a later year when computing taxable income, but is included in E&P in the current year?

  Calculate its price change

Its yield to maturity is currently 6%. Using modified duration, calculate its price change if the interest rate increases by 30 basis-point

  What is the interest income for beta corp

On April 1, 2019, the first principal and interest payment was made. What is the interest income for 2019? Beta Corp. has a $4,000,000 note receivable.

  What are the five variables in present value problems

What are the five variables in present value problems? What Excel functions are used in the Hi-Lo method of predicting costs?

  Describe the indian reaction to europeans

Describe the Indian reaction to Europeans. According to the documents, what is the Indian response to Europeans? In what ways do Indians interact with Europeans

  What is another name for unsystematic risk

What is another name for unsystematic risk? Your portfolio's beta should? You sell some of your Exxon common stock (which tends to earn same return every year)

  Find how much is the company ebitda

Find How much is the company's EBITDA? Other operating expenses 980,000. Restructuring charges 320,000. Restructuring charges 320,000

  How much of the expense can Firm L deduct under Section

How much of the expense can Firm L deduct under Section 179 if its taxable income before the deduction was $1,400,000? (Assume that $1,000,000 is available)

  Calculate the accounting rate of return for the project

Calculate the accounting rate of return for this project. Yellow stone company has an initial investment of $800,000 for computer equipment.

  Find What is? Temple after-tax cost of debt on the? bond

Investors are willing to pay ?$952 for the bond and Temple faces a tax rate of 33 percent. What is? Temple's after-tax cost of debt on the? bond?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd