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In early March an insurance company portfolio manager has a stock portfolio of $500 million with...

In early March an insurance company portfolio manager has a stock portfolio of $500 million with a portfolio beta of 1.20. The portfolio manager plans on selling the stocks in the portfolio in June to be able to pay out funds to policyholders for annuities, and is worried about a fall in the stock market. In April, the CME Group S&P 500 mini= Futures contract index is 2545 for a June futures contract ($50 multiplier for this contract).

Suppose in June the stock market (S&P500 index) falls by 10% and the S&P500 futures index falls by 10% as well, what is the portfolio manager’s opportunity loss (gain) on his portfolio, and his futures gain (loss) and the net hedging result?

Spot Gain or Loss ________   Futures Gain or Loss _______

Net Hedging Result ___________

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Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 1 year ago
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