Long or short to adjust portfolio to the desired beta

Assignment Help Financial Management
Reference no: EM131972476

Assume that you are an equity portfolio manager with a well-diversified portfolio valued at $2.5 million with a beta of 1.1, but you have a positive outlook on the short-term prospects of the stock market and want to increase your market risk using index futures by increasing your beta to 1.6. Assume that the S&P500 is trading at a price of 2655, the futures multiplier is $250, and the futures price is currently 2670.

How many contracts would you need to go long or short to adjust the portfolio to the desired beta?

Assume that the risk-free interest rate is 2% and the continuous market dividend yield is 2%. Furthermore, assume that 6-months later the index is trading at 2785 and the futures price is 2795. What is the value of the total position (equity portfolio plus gains or losses from the futures contract)?

What are some reasons that a futures contract cannot provide a perfect hedge to an equity portfolio in a situation like this?

Reference no: EM131972476

Questions Cloud

Explain why real estate is special type of capital : What is the purpose of a title company? Explain why real estate is a special type of capital? whats special about it compared to other forms?
Forward price to purchase one share of citigroup stock : What is the forward price to purchase one share of Citigroup stock in 3 months?
Any further contributions to your retirement fund : If you do not want to make any further contributions to your retirement fund, how much do you need today?
Reviewing the current holdings of portfolio of investments : A rish manager is reviewing the current holdings of a portfolio of investments. What is the current one day VAR using 3 year lookback at 99% confidence level?
Long or short to adjust portfolio to the desired beta : How many contracts would you need to go long or short to adjust the portfolio to the desired beta?
Commodity arbitrageur on nymex : Suppose you are a commodity arbitrageur on the NYMEX: you can buy oil barrels and store them at some cost,
How much will you have at end of the time horizon : Assuming you earn a 8.1% rate of return during the entire period, how much will you have at the END of the time horizon?
Computing income taxes : The William B. Waugh Corporation is a regional Toyota dealer. Calculate the? corporation's tax liability.
Yield to maturity of corporation callable bond : What is the yield to maturity of a corporation callable bond with 13 years to maturity, a coupon rate of 8% per year a 1000 par value

Reviews

Write a Review

Financial Management Questions & Answers

  Foreign company acquisition

Acquisition by a foreign company and the effects of that decision and the results of foreign exchange in Euro and the exchange rate differences.

  Financial management for profit and non profit organizations

In this essay, we are going to discuss the issues of financial management in a non-profit organisation.

  Method for estimating a venture''s value

Evaluate venture's present value, cash and surplus cash and basic venture capital.

  Replacement analysis

This document show the Replacement Analysis of modling machine. Is replacement give profit to company or not?

  Business finance task - capital budgeting

Your company is considering using the payback period for capital-budgeting. Discuss the advantages and disadvantages of this technique.

  Analysis of the investment

In this project, you will focus on one of these: the additional cost resulting from the purchase of an apple press (a piece of equipment required to manufacture apple juice).

  Conduct a what-if analysis

Review the readings and media for this unit, including the Anthony's Orchard case study media. Familiarise yourself with the Anthony's Orchard company and its current situation.

  Determine operational expenditures

Organisations' behaviour is guided by financial data. In the short term, such data will help determine operational expenditures; in the long term, historical data may help generate forecasts aimed at determining strategic plans. In both instances.

  Personal financial management

How much will you have left over each half year if you adopt the latter course of action?

  Sources of finance for expansion into new foreign markets

A quoted company is considering several long-term sources of finance for expansion into new foreign markets.

  Long term financial planning

This assignment is designed for analyze Long term financial planning begins with the sales forecast and the key input in the long term fincial planning.

  Explain the role of fincial manager

This assignment explain the role of fincial manager, function of manger. And what are the motives of financial manager.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd