What position will you need to hedge your portfolio

Assignment Help Finance Basics

Reference no: EM131928352

Question: You have a $6,000,000 portfolio that has a beta of 2.4 to the S&P 500. You have decided you want to hedge this portfolio over the next 12 months. The 13-month S&P 500 futures price is $2300, and the current S&P 500 index value is $2250. The 12-month continuously compounded risk-free rate is 1% and the annual dividend yield on the S&P 500 is 2%. As a reminder, futures contracts are for $250 multiplied by the index value

a) What position in futures contracts will you need to hedge your portfolio?

b) Now check to see if your answer to part a) hedges your position effectively or not. Find the value of your portfolio in one year (including the futures position) if the S&P drops to $1200, if it drops to $2100, and if it increases to $3200. Assume the S&P 1-month futures price is $1205, $2107, and $3215, respectively.

Reference no: EM131928352

Questions Cloud

How many additional dollars of interest would you earn : You have $540540 in an account which pays 4.14.1?% compounded annually. How many additional dollars of interest would you earn over 44 years.

Prepare the journal entry necessary to record the change : Prepare the journal entry necessary to record the change in 2015 and show net income reported for 2012, 2013, 2014, and 2015.

What is that cash price of the house now : What is that cash price of the house now with a 30 yr mortgage?

What does this problem tell you about the interest rate risk : Illustrate your answers by graphing bond prices versus YTM. What does this problem tell you about the interest rate risk of longer-term bonds?

What position will you need to hedge your portfolio : You have a $6,000,000 portfolio that has a beta of 2.4 to the S&P 500. You have decided you want to hedge this portfolio over the next 12 months.

What is the total current cash price of house : A modest home was purchased for $30,000 down payment and $1,000 a month for 5 yrs with a 12% interest rate compounded monthly.

Calculate the required monthly payment amount : Using the values in the preceding table, complete the following steps to calculate the required monthly payment amount for this loan.

How much he will need to put into an account every : In order to retire as a "Millionaire" at a young age of 50, Joe needs to figure out how much he will need to put into an account every quarter (3 months).

What was the beginning retained earnings for the period : If net income for the period was $139,950, dividends distributed were $79,000. What was the beginning retained earnings for the period?

User Account

All Pages