A company has a £10 million portfolio with a beta of 0.8 to the stock market. The futures price for a contract on the stock market is 500. Futures contracts can be traded with value equal to £10 multiplied by the futures price. What position should one take in order to completely hedge the market risk? a. Short 2000 contracts b. Long 2000 contracts c. Short 1600 contracts d. Long 1600 contracts
A company has a £10 million portfolio with a beta of 0.8 to the stock market. The futures price for a contract on the stock market is 500. Futures contracts can be traded with value equal to £10 multiplied by the futures price. What position should one take in order to completely hedge the market risk? a. Short 2000 contracts b. Long 2000 contracts c. Short 1600 contracts d. Long 1600 contracts
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A company has a £10 million portfolio with a beta of 0.8 to the stock market. The futures price for a contract on the stock market is 500. Futures contracts can be traded with value equal to £10 multiplied by the futures price. What position should one take in order to completely hedge the market risk?
a.
Short 2000 contracts
b.
Long 2000 contracts
c.
Short 1600 contracts
d.
Long 1600 contracts
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