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i. As a fund manager at SOOFI FUND, you hold a portfolio of Malaysian stocks with a beta of 120. You are worried about potentially

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i. As a fund manager at SOOFI FUND, you hold a portfolio of Malaysian stocks with a beta of 120. You are worried about potentially huge volatility over the next 3 months. However, as you are confident about your portfolio performance in long term, to keep your position in the stocks, you implement hedging strategy using FKLI futures. FKLI is a Ringgit Malaysia ("MYR") denominator of the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) Futures contract traded on Bursa Malaysia Derivatives, providing market participants exposure to the underlying FBM KLCI constituents. - Current value of portfolio Risk-free rate Dividend yield on portfolio Spot Index value 3-month FKLI futures contract = RM 600,000 = 7.5% per year - 3% annualized - 1,200 points = 1,211.82 points . a) Briefly explain what risk you face as the fund manager of the company. [2 mark b) Outline a hedging strategy to manage the risk using FKLI futures. [3 mar c) Indicate how many contracts you should be entered in this strategy [2 ma d) Show the outcome of the strategy if the stock price falls 10% in the next 90 days. [14 m e) Compute how many percent the value of your portfolio will increase after three months and explain whether the increased amount was what you expected. [40

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