Explanation:
To increase the beta of the portfolio from the market beta (1.0) to 1.5, the portfolio manager should take a long position:
\# \text{ of contracts} = (1.5 - 1.0) \times \frac{\`$250`,000,000}{5,600 \times 250} = 89 \text{ contracts}(Book 3, Module 34.2, LO 34.g)
Ultimate access to all questions.
Question 82
A portfolio manager wishes to leverage her equity position using index futures to a beta of 1.5. She currently has a well-diversified $250 million equity portfolio with a beta correlated to the market. The current value of the S&P futures index is 5,600 (multiplier of 250). How many contracts are necessary to adjust the beta of this portfolio?
A
Short 89 contracts.
B
Short 179 contracts.
C
Long 89 contracts.
D
Long 179 contracts.
No comments yet.