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SP500 Index Value is currently 1000 SP Futures Price = 1025 Value of Portfolio = 1,000,000 Risk-free rate = 2.0% Dividend yield on index =
SP500 Index Value is currently 1000
SP Futures Price = 1025
Value of Portfolio = 1,000,000
Risk-free rate = 2.0%
Dividend yield on index = 1% per year
BETAp=.75 (systematic risk of portfolio)
F is $250 times the value of the index
In three months time the index increases in value by 3 percent (so that SP500=1030) and that F is $1032
Show the effect on the portfolio in terms of its net value if the portfolio is hedged with the index
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