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Amiraneli [1.4K]
3 years ago
6

A manager is holding a $1.2 million stock portfolio with a beta of 1.01. She would like to hedge the risk of the portfolio using

the S&P 500 stock index futures contract. How many dollars’ worth of the index should she sell in the futures market to minimize the volatility of her position? (Enter your answer in dollar not in millions.)
Business
1 answer:
garri49 [273]3 years ago
5 0

Answer: $1,212,000 or $1.212 million

Explanation:

To calculate the dollars’ worth of the index the manager should sell in the futures market to minimize the volatility of her position, we can use the following formula,

Dollar worth of index to sell = Value of the Portfolio * Portfolio Beta

Dollar worth of index to sell = 1,200,000 * 1.01

Dollar worth of index to sell = $1,212,000

The manager should sell $1,212,000 worth of the index in the futures market to minimize the volatility of her position.

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