Securities analyst recommended general cinema

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On March 1, a securities analyst recommended General Cinema stock as a good purchase in the early summer. The portfolio manager plans to buy 20,000 shares of the stock on June 1 but is con-cerned that the market as a whole will be bullish over the next three months. General Cinema's stock currently is at 32.88, and the beta is 1.10.

Construct a hedge that will protect against movements in the stock market as a whole. Use the September stock index futures, which is priced at 375.30 on March 1 and has a $500 multiplier. Evaluate the outcome of the hedge if on June 1 the futures price is 387.30 and General Cinema's stock price is 38.63.

Reference no: EM132204197

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