Question
The following quotes are available: KLCI spot = 1600 points, 3-month FKLI = 1603 points (FKLI will mature in 60 days), risk-free rate = 4%
The following quotes are available: KLCI spot = 1600 points, 3-month FKLI = 1603 points (FKLI will mature in 60 days), risk-free rate = 4% annualised, KLCI dividend yield = 1.75% annualised. The current value of your portfolio is RM 1 million with a beta of 1.8. You are worried about short term volatility and decide to hedge your portfolio using FKLI.
i) How many FKLI contracts should you hedge?
ii) Show the profit or loss if KLCI drops by 10%.
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| Action | Position today | Position at maturity | Profit / Loss |
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Financial Markets Instruments And Institutions
Authors: Anthony M. Santomero, David Babbel
2nd Edition
0072358688, 9780072358681
