Maurice Tutor

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  • MCS,PHD
    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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  • Professor
    Phoniex University
    Oct-2001 - Nov-2016

Category > Accounting Posted 21 Aug 2017 My Price 8.00

Janice Delsing

31.   Janice Delsing, a U.S.-based portfolio manager, manages an $800 million portfolio ($600 million in stocks and $200 million in bonds). In reaction to anticipated short- term market events, Delsing wishes to adjust the allocation to 50 percent stocks and 50 percent bonds through the use of futures. Her position will be held only until “the time is right to restore the original asset allocation.” Delsing determines a financial futures- based asset allocation strategy is appropriate. The stock futures index multiplier is

$250 and the denomination of the bond futures contract is $100,000. Other information relevant to a futures-based strategy is given in the following exhibit.

 

Information for Futures-Based Strategy

Bond portfolio modified duration                                     5 years

Bond portfolio yield to maturity                                          7% Price value of basis point (PVBP) of bond futures                                    $97.85 Stock index futures price                                                               1378

Stock portfolio beta                                                             1.0

 

a.   Describe the financial futures-based strategy needed and explain how the strategy allows Delsing to implement her allocation adjustment. No calculations are necessary.

b.   Compute the number of each of the following needed to implement Delsing’s asset allocation strategy:

i.    Bond futures contracts

ii.    Stock index futures contracts

Answers

Maurice Tutor
(5)
Status NEW Posted 21 Aug 2017 02:08 PM My Price 8.00

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