A company has a $36 million stock portfolio with a beta of 1.2. The portfolio is...

A company has a $36 million stock portfolio with a beta of 1.2. The portfolio is very highly correlated with the S&P 500 index. The futures price for a contract written on the S&P 500 index is 2500. one futures contract is for delivery of 50 times the index value. What futures trade is necessary to reduce the beta of the combined stock portfolio and futures position to 0.9?

Solutions

Expert Solution

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

A company has a $36 million stock portfolio with a beta of 2. The portfolio is...

A company has a $36 million stock portfolio with a beta of 2. The portfolio is very highly correlated with the S&P 500 index. The futures price for a contract written on the S&P 500 index is 2500. One futures contract is for delivery of 50 times the index value. What futures trade is necessary to reduce the beta of the combined stock portfolio and futures position to 0.9?

Assume the CAPM holds. Portfolio A has a beta of 1.2. Portfolio B has a beta...

Assume the CAPM holds. Portfolio A has a beta of 1.2. Portfolio B has a beta of 2.4. Which of the following is true? none of the answers listed here. the return on Portfolio A is twice the return on portfolio B. The return on Portfolio B is twice the return on Portfolio A. the return on Portfolio A is half the return on portfolio B. 10 points

I currently own a portfolio of stocks worth $10 million that has a beta of 1.2. It...

I currently own a portfolio of stocks worth $10 million that has a beta of 1.2. It has perfect positive correlation with the S&P500 index. The risk-free rate is 3%, and the market risk premium for the S&P500 is 8%. The S&P500 is currently valued at 2500. The notional value of one contract is $250*S&P value. Calculate the one-year futures price on the S&P500 index. If I want to own a risk-free bond instead of the index, explain how I can do this without...

1A) Nicholas has built a 16,000 dollar stock portfolio with a beta of 1.2, an expected...

1A) Nicholas has built a 16,000 dollar stock portfolio with a beta of 1.2, an expected return of 10.8 percent, and a standard deviation of 25%. Melinda also has a 16,000 dollar portfolio, but it has a beta of 0.8, an expected return of 9.2 percent, and a standard deviation that is also 25%. The correlation coefficient between Nicholas' and Melinda's portfolios is zero. If Nicholas and Melinda marry and combine their portfolios, which of the following best describes their...

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....

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 Hong Kong stock portfolio worth $100 million with a beta of...

7. Stock A has an expected return of 18.6 percent and a beta of 1.2. Stock...

7. Stock A has an expected return of 18.6 percent and a beta of 1.2. Stock B has an expected return of 15 percent and a beta of 0.9. Both stocks are correctly priced and lie on the Security market Line (SML). What is the reward-to-risk ratio for stock A?

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...

You want to design a portfolio has a beta of zero. Stock A has a beta...

You want to design a portfolio has a beta of zero. Stock A has a beta of 1.69 and Stock B’s beta is also greater than 1. You are willing to include both stocks as well as a risk-free security in your portfolio. If your portfolio will have a combined value of $5,000, how much should you invest in Stock B? a) $2,630 b) $0 c) $2,959 d) $3,008 e) $1,487

Subjects