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An investor holds shares of ABC Ltd. worth Rs 75 lakhs which has a standard deviation of returns at 30% with a beta of 1.5.

An investor holds shares of ABC Ltd. worth Rs 75 lakhs which has a standard deviation of returns at 30% with a beta of 1.5. The standard deviation of market returns is 15%. Index futures on Nifty is priced at 15,000 with contract size of 75.

1.If the investor hedges his portfolio with the futures, find out what position he must take in Nifty futures?

2. What is the risk of the unhedged portfolio?

3.Also find what risk the investor would face in the hedged portfolio?

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