S net value if the portfolio is hedged with the index.

Reference no: EM13154250

SP500 Index value is currently 1000
SP500 Futures Price = 1025
Value of Portfolio = $1,000,000
Risk-free rate = 2.0%
Dividend yield on index = 1% (per year)
(systematic risk of the portfolio)
F is $250 times the value of the index.

In three months time the index increases in value by 3 percent (so that SP500 = 1030) and that F = $1032.

Show the effect on the portfolio in terms of its net value if the portfolio is hedged with the index.

Reference no: EM13154250

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