Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A large mutual fund holds 1 0 0 , 0 0 0 shares of Alphabet ( Google ) common stock, which is currently trading at

A large mutual fund holds 100,000 shares of Alphabet (Google) common stock, which is
currently trading at $1,202? share with a beta of 1.15. The CME Group E Mini Dow
futures contract trades at $5 times the index, which for the June contract is at 25,542.
a. The fund managers are worried about the volatility of the tech stocks in their
portfolio, so they want to hedge. Construct a hedge position (short or long) on the
basis of this fear.
b. In June, their fears are realized. Alphabet has underperformed the market, closing at
$1175 while the index is at 26,056. Calculate the performance of the hedge by
computing the change in the portfolio position and the change in the futures position.
Was it successful? Explain.
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Markets And Institutions

Authors: Frederic S. Mishkin

2nd Edition

0321014650, 9780321014658

More Books

Students also viewed these Finance questions

Question

\f

Answered: 1 week ago

Question

How could a timer be used to compute the current time?

Answered: 1 week ago

Question

Should banks have to hold 100% of their deposits? Why? Or why not

Answered: 1 week ago

Question

=+ How about one you felt had acted in a hypocritical way?

Answered: 1 week ago