Question
A manager has a $100 million portfolio that consists of 50% stock and 50% bonds. The beta of the stock position is 1.3. The modified
A manager has a $100 million portfolio that consists of 50% stock and 50% bonds. The beta of the stock position is 1.3. The modified duration of the bond position is 2. The manager wishes to achieve an effective mix of 70% stock and 30% bonds. The price and beta of the stock index futures contracts are $412,562 and 1 respectively. (The futures price includes the effect of the index multiplier.) The price, modified duration, and yield beta of the bond futures contracts are $99,580, 4, and 1 respectively. What is the appropriate strategy?
A. | Short 88 bond futures contracts and go long 63 stock index futures contracts. | |
B. | Go long 176 bond futures contracts and short 51 stock index futures contracts. | |
C. | Short 176 bond futures contracts and go long 63 stock index futures contracts. | |
D. | Go long 88 bond futures contracts and short 15 stock index futures contracts. |
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