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Fiesta28 [93]
3 years ago
13

John Q. Investor manages an equity portfolio with a market value of $3,000,000. The portfolio beta is 1.6. John Q. finds this so

mewhat overly aggressive for the client's risk profile and sells 25 DJIA futures contracts. The contract is defined as $10 times index and is currently trading at 15379. John Q. anticipates that this hedge will reduce the portfolio beta to ___?
Business
1 answer:
Lubov Fominskaja [6]3 years ago
7 0

Answer:

Portfolio Beta  = 1.2815

Explanation:

given data

market value = $3,000,000

portfolio beta = 1.6

sells = 25

times index = $10

currently trading = 15379

to find out

anticipates that this hedge will reduce the portfolio beta to

solution

we get number of contract to sell is here

number of contract to sell = Portfolio Beta × \frac{Portfolio\ value}{index\ value\ * multiplier}      ......................1

put here value we get

25 = Portfolio Beta × \frac{3,000,000}{15379 * 10}

solve it we get

Portfolio Beta  = 1.2815

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