Answer:
A. The company should take Short position and
140 contract
B. The company should take Long position and 60 contract
B.
Explanation:
Calculation for what position that the company should take
Using this formula
Company position=(Beta of the portfolio*Change in beta of the portfolio) *Portfolio of stocks /Index futures price* Each Contract index times
Let plug in the formula
Company position =(1.2-0.5)*$100 million/2,000*250
Company position=0.7*$100 million/500,000
Company position=$70,000,000/500,000
Company position=140 contract
Therefore the position that the company should take will be SHORT position with 140 contract
B. Calculation for the increase in beta of the portfolio from 1.2 to 1.5 and what position tthr company should take in the futures contract and how many contracts
Using this formula
Company position=Increase in beta of the portfolio *Portfolio of stocks /Index futures price* Each Contract index times
Let plug in the formula
Company position =(1.5-1.2)*$100 million/2,000*250
Company position=0.3*$100 million/500,000
Company position=$30,000,000/500,000
Company position=60 contract
Therefore the company should take Long position and 60 contract
