16. Suppose the S&P 500 currently has a level of 875. The continuously compounded return on a...

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16. Suppose the S&P 500 currently has a level of 875. The continuously compounded return on a 1-year T-bill is 4.75%. You wish to hedge an $800,000 portfolio that has a beta of 1.1 and a correlation of 1.0 with the S&P 500.

a. What is the 1-year futures price for the S&P 500 assuming no dividends?

b. How many S&P 500 futures contracts should you short to hedge your portfolio?

What return do you expect on the hedged portfolio?

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Derivatives Markets Pearson New International Edition

ISBN: 978-1292021256

3rd Edition

Authors: Robert L. Mcdonald

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Question Posted: Jul 22, 2024 06:04 AM

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16. Suppose the S&P 500 currently has a level of 875. The continuously compounded return on a...

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Derivatives Markets Pearson New International Edition

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