Assume That You Manage a $50 Million Equity Portfolio

question 52

Multiple Choice

Assume that you manage a $50 million equity portfolio.The portfolio beta is 0.85.You anticipate a cash inflow of $5 million into the portfolio.Calculate the number of contracts you would need to hedge your position and indicate whether you would go short or long.Assume that the price of the S&P 500 futures contract is 1062 and the multiplier is 250.

• A) 25 contracts short
• B) 18 contracts short
• C) 16 contracts long
• D) 19 contracts short
• E) None of the above

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Definitions:

Statistic

A statistic is a numerical measurement describing some characteristic of a sample, which is a subset of the population data.

Research Hypothesis

An educated guess or prediction made for the purpose of testing through scientific research, stating a potential outcome or relationship.

Critical Values

Thresholds in hypothesis testing which, if exceeded by the test statistic, indicate that the null hypothesis can be rejected.

Standard Deviation

A metric that quantifies how spread out a dataset is in comparison to its average value.