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(b) It is 4th November 2017; you are managing a Mutual fund and wish to hedge its Rs 800 million stock portfolio. The hedge period
(b) It is 4th November 2017; you are managing a Mutual fund and wish to hedge its Rs 800 million stock portfolio. The hedge period is five months and beta of the equity portfolio is 1.5. The dividend yield on equity portfolio q is 12% per annum with semiannual compounding, and the risk-free interest rater is 10% per annum with continuous compounding. You chose to hedge with May 2018 futures with T= 6/12 years to expiry. The current level of SP 500 is 15550 and contract multiple is Rs 10 per index point. How many futures contracts should you short in order to hedge the equity portfolio? What is the expected return on portfolio if the SP 500 index turns out to be 11200 in five months and the futures price be Rs.11300 at this time? Also find the expected value of the headers position, including the gain or loss on the hedge (14) (b) It is 4th November 2017; you are managing a Mutual fund and wish to hedge its Rs 800 million stock portfolio. The hedge period is five months and beta of the equity portfolio is 1.5. The dividend yield on equity portfolio q is 12% per annum with semiannual compounding, and the risk-free interest rater is 10% per annum with continuous compounding. You chose to hedge with May 2018 futures with T= 6/12 years to expiry. The current level of SP 500 is 15550 and contract multiple is Rs 10 per index point. How many futures contracts should you short in order to hedge the equity portfolio? What is the expected return on portfolio if the SP 500 index turns out to be 11200 in five months and the futures price be Rs.11300 at this time? Also find the expected value of the headers position, including the gain or loss on the hedge (14)
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