Question
A portfolio manager (PM)wishes to hedge the portfolios value for the next 9-10 months using the SP500 index futures. Today, t, the portfolios market value
A portfolio manager (PM)wishes to hedge the portfolios value for the next 9-10 months using the SP500 index futures. Today, t, the portfolios market value is $25,000,000 and its beta with the SP500 index is 1.62. The SP500 index futures for a year hence delivery month is 3,240 and its dollar multiplier is $250.
A. Use a time table to show the hedge that PM opens.
B. Use the same time table to show the transactions taken by PM 10 months later when the portfolios market value was $23,000,000 and the 2-months SP500 index futures price was 3,080. Calculate the value of the portfolio with the hedge.
Date Cash Market Futures Market
C. Use the time table you opened in 7.1 to show the transactions taken by PM 10 months hence if instead of the above, the portfolios market value was $28,000,000 and the 2-months SP500 index futures price was 3,460. Calculate the value of the portfolio with the hedge.
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