Maintains current relative proportions invested in stock

Assignment Help Financial Management

Reference no: EM131297382

A fund manager manages a portfolio of mid-cap stocks. She anticipates receiving $30 million in cash four months from today to be invested in the portfolio in a manner that maintains the current relative proportions invested in each stock. The portfolio’s return is highly correlated with the S&P MidCap 400 index; the portfolio has a beta of 0.75 with this index. The S&P MidCap 400 index futures contract has an index multiplier of $500. The manager plans to hedge her purchase with December futures. The current futures price for the December contract is 1,340. If the manager wants to hedge her future purchase of stocks in November, what is the optimum number of December contracts to use? Hint: (34 contracts)

Reference no: EM131297382

Questions Cloud

Annual rate of interest in the savings account : Aaron, Bradford and Charles have been friends since childhood. At the high school graduation ceremony they decided to make a bet about who would be the fastest to save $50,000. Exactly 10 years later they met at the first high school reunion. Which o..

What is the current market price of the bond : The 4.5 percent bond of JL Motors has a face value of $1,000, a maturity of 7 years, semiannual interest payments, and a yield to maturity of 6.23 percent. What is the current market price of the bond?

What was the cash flow from operating activities : A firm had $60,000 in cash at year-end 2014 and $25,000 at year-end 2015. The firm invested in property plant and equipment totaling $300,000; cash flow from financing totaled $185,000. What was the cash flow from operating activities?

What is new divisor for the price-weighted index : Able, Baker, and Charlie are the only three stocks in an index. The stocks sell for $37, $312, and $94, respectively. If Baker undergoes a 2-for-1 stock split, what is the new divisor for the price-weighted index?

Maintains current relative proportions invested in stock : A fund manager manages a portfolio of mid-cap stocks. She anticipates receiving $30 million in cash four months from today to be invested in the portfolio in a manner that maintains the current relative proportions invested in each stock. what is the..

What is the companys stock price today : A company is expected to pay a dividend of $1.25 three years from now. Once the company initiates the dividend payment, the dividends are expected to grow at a constant rate of 5% per year thereafter. The required return on this company is 10%. What ..

What is the bonds yield to maturity today : Last year a company issued 12-year 10% semiannual coupon bond at its par value of $1000. What is the bond’s yield to maturity today if the bond sells for $1050 now?

Appraise strategies for measurement-management of such risks : On 1 April 2014, Singapore’s OCBC Bank announced its offer to acquire all the issued shares of Wing Hang Bank Limited in Hong Kong at a price of HK$125 per share. Identify at least four (4) financial risks faced by OCBC Bank group that might be impac..

Dividends are expected to grow at a constant rate : A company is expected to pay a dividend of $1.25 three years from now. Once the company initiates the dividend payment, the dividends are expected to grow at a constant rate of 5% per year thereafter. The required return on this company is 10%. What ..

User Account

All Pages