Question
In: Finance
A fund manager has a Hong Kong stock portfolio worth $100 million with a beta of...
A fund manager has a Hong Kong stock portfolio worth $100 million with a beta of 1.15. The manager is concerned about the performance of the market over the next 2 months due to the recent coronavirus outbreak and plans to hedge the risk using Hang Seng Index futures. The 2- month futures price is 22,500. One contract is on $50 times the index. The initial margin is $150,000 per contract and the maintenance margin is $120,000 per contract. (a) Determine the number of futures contracts required by the hedge and whether the fund manager should long or short futures. (b) What price of the Hang Seng Index futures will lead to a margin call after entering into the transaction? (c) At the horizon date, the portfolio value falls 9%, and the Hang Seng Index futures falls to 20,800. Determine the overall profit or loss of the hedging position and comment the hedging effectiveness. (d) As an alternative strategy, what should the fund manager do if he wants to reduce the portfolio sensitivity to market risk, that is to say lowering the beta to 0.3?
Solutions
Expert Solution
SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE
jeff jeffy answered 1 year agoRelated Solutions
A fund manager has a Hong Kong stock portfolio worth $100 million with a beta of...
A fund manager has a Hong Kong stock portfolio worth $100
million with a beta of 1.15. The manager is concerned about the
performance of the market over the next 2 months due to the recent
coronavirus outbreak and plans to hedge the risk using Hang Seng
Index futures. The 2- month futures price is 22,500. One contract
is on $50 times the index. The initial margin is $150,000 per
contract and the maintenance margin is $120,000 per contract.
(a)...
A fund manager has a portfolio worth $100 million with a beta of 1.5. The manager...
A fund manager has a portfolio worth $100 million with a beta of
1.5. The manager is concerned about the performance of the market
over the next two months and plans to use three-month futures
contracts on the S&P 500 to hedge the risk. The current level
of the index is 2250, one contract is on 250 times the index, the
risk free rate is 2%, and the dividend yield on the index is 1.7%
per year. (Assume all the...
A fund manager has a portfolio worth $10 million with a beta of 0.85. The manager...
A fund manager has a portfolio worth $10 million with a beta of
0.85. The manager is concerned about the performance of the market
over the next months and plans to use 3-month futures contracts on
the S&P 500 to hedge the risk. The current level of the index
is 2,800, one contract is 250 times the index, the risk-free rate
is 3% per annum, and the dividend yield on the index is 1% per
annum.
a) Calculate the theoretical...
A fund manager has a portfolio worth $50 million with a beta of 0.80. The manager...
A fund manager has a portfolio worth $50 million with a beta of
0.80. The manager is concerned about the performance of the market
over the next two months and plans to use three-month futures
contracts on the S&P 500 to hedge the risk. The current level
of the S&P 500 index is 1250, the risk-free rate is 6% per
annum, and the dividend yield on the index is 3% per annum. The
current 3-month S&P 500 index futures price...
A fund manager has a portfolio worth $50 million with a beta of 0.75. The manager...
A fund manager has a portfolio worth $50 million with a beta of
0.75. The manager is concerned about the performance of the market
over the next two months and plans to use three-month futures
contracts on a well-diversiļ¬ed index to hedge its risk. The current
level of the index is 2,750, one contract is on 250 times the
index, the risk-free rate is 6% per annum, and the dividend yield
on the index is 2% per annum. a) What...
A fund manager has a portfolio worth $86 million with a beta of 1.20. The manager...
A fund manager has a portfolio worth $86 million with a beta of
1.20. The manager is concerned about the performance of the market
over the next two months and plans to use three-month futures
contracts on the S&P 500 to hedge the risk. The current level
of the S&P 500 index is 1,190, the risk-free rate is 2% per
annum, and the dividend yield on the index is 4% per annum. The
current 3-month S&P 500 index futures price...
A hedge fund manager has a portfolio worth $50 million with a beta of 1.25. The...
A hedge fund manager has a portfolio worth $50 million with a
beta of 1.25. The manager is concerned about the performance of the
market over the next two months He plans to uses three-month stock
market index futures to hedge his market exposure. The current
stock market index level is 2,500 and one contract is on 250 times
the futures price. The continuously compounded interest rate is 3%
and the dividend yield on the stock market index is 2%....
A fund manager has a portfolio worth $200 million with a beta against the S&P 500...
A fund manager has a portfolio worth $200 million with a beta
against the S&P 500 of 1.2. The manager is concerned about the
performance of the market over the next 2 months and plans to use
3-month futures contracts on the S&P 500 to hedge the risk. The
current 3-month futures price is 2500 and one contract is written
on 250 times the index. The risk free rate is 4% per annum and the
dividend yield on the index...
PORTFOLIO BETA A mutual fund manager has a $20 million portfolio with a beta of 1.50....
PORTFOLIO BETA
A mutual fund manager has a $20 million portfolio with a beta of
1.50. The risk-free rate is 6.00%, and the market risk premium is
5.0%. The manager expects to receive an additional $5 million,
which she plans to invest in a number of stocks. After investing
the additional funds, she wants the fund's required return to be
12%. What should be the average beta of the new stocks added to the
portfolio? Do not round intermediate calculations....
It is July 16. A company has a portfolio of stocks worth $100 million. The beta...
It is July 16. A company has a portfolio of stocks worth $100
million. The beta of the portfolio is 1.6. The company would like
to use the CME December futures contract on the S&P 500 to
change the beta of the portfolio to 0.3 during the period July 16
to November 16. The December S&P 500 index futures price is
currently 1,000, and each contract is on $250 times the index.
(a) What position should the company take? How...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- A pension fund manager is considering three mutual funds. The first is a stock fund, the...
- Compute the cost of not taking the following cash discounts. (Use a 360-day year. Do not...
- During his project presentation, Bob falls sick and performs poorly. However, his colleague, Dan, concludes that...
- A sample human input file that contains test values that a human would enter on the...
- A solution is prepared by dissolving 15 ml of methanol in 150.0 ml water at 25...
- Consider a newlywed who is planning a wedding anniversary gift of a trip to Canada for...
- We are evaluating a project that costs $868,000, has a life of eight years, and has...
ADVERTISEMENT