a) As a portfolio manager with a Malaysian bank, AllTime Untung Bank Bhd, you are given the preference to control RM5 million in common stock. You anticipate a stock market decline in very near future. You decide to hedge the portfolio using SIF contract. The portfolio's beta is 1.2, and the current value of the FBM KLCI index is 1716.00 and 3-month SIF futures contract is at 1750. i) Calculate the number of futures contract that should be bought or sold (assuming per index is RM50 and RM100). (8 marks) ii) Suppose that when the contracts are closed out, the portfolio has fallen in value to 10% and that the KLCI futures has fallen to 1600.00. Assuming per index is RM50, calculate the gain or losses on the combined position (stock portfolio and futures contracts). (9 marks) b) You plan to hedge half the market risk of a RM100 million stock portfolio with a Beta of 0.90. The September KLCI futures settled at 1065.25. How many futures contracts are necessary to do so? (The futures contract is RM50 times and RM100 times the value of the index.) (8 marks) a) As a portfolio manager with a Malaysian bank, AllTime Untung Bank Bhd, you are given the preference to control RM5 million in common stock. You anticipate a stock market decline in very near future. You decide to hedge the portfolio using SIF contract. The portfolio's beta is 1.2, and the current value of the FBM KLCI index is 1716.00 and 3-month SIF futures contract is at 1750. i) Calculate the number of futures contract that should be bought or sold (assuming per index is RM50 and RM100). (8 marks) ii) Suppose that when the contracts are closed out, the portfolio has fallen in value to 10% and that the KLCI futures has fallen to 1600.00. Assuming per index is RM50, calculate the gain or losses on the combined position (stock portfolio and futures contracts). (9 marks) b) You plan to hedge half the market risk of a RM100 million stock portfolio with a Beta of 0.90. The September KLCI futures settled at 1065.25. How many futures contracts are necessary to do so? (The futures contract is RM50 times and RM100 times the value of the index.) (8 marks)
