Maurice Tutor

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Teaching Since: May 2017
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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 > Management Posted 04 Dec 2017 My Price 7.00

equity portfolio,

 Alex Andrew, who manages a $95 million large-capitalization U.S. equity portfolio, 
currently forecasts that equity markets will decline soon. Andrew prefers to avoid the 
transaction costs of making sales but wants to hedge $15 million of the portfolio’s 
current value using S&P 500 futures. 

Because Andrew realizes that his portfolio will not track the S&P 500 Index exactly, he 
performs a regression analysis on his actual portfolio returns versus the S&P futures 
returns over the past year. The regression analysis indicates a risk-minimizing beta of 0.88 
ith an R2 of 0.92. 

Futures Contract Data 
S&P 500 futures price 1,000
S&P 500 index 999
S&P 500 index multiplier 250

a. Calculate the number of futures contracts required to hedge $15 million of Andrew’s portfolio, 
using the data shown. State whether the hedge is long or short. Show all calculations. 


b. Identify two alternative methods (other than selling securities from the portfolio or using futures) 
that replicate the strategy in Part a. Contract each of these methods with the futures strategy. 
Chapter 21: Problem 10(a-c)

Answers

Maurice Tutor
(5)
Status NEW Posted 04 Dec 2017 07:12 PM My Price 7.00

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