Exhibit 21.9 Use the Information Below for the Following Problem(S)

question 24

Multiple Choice

Exhibit 21.9
Use the Information Below for the Following Problem(S)
As a portfolio manager, you are responsible for a $150 million portfolio, 90 percent of which is invested in equities, with a portfolio beta of 1.25. You are utilizing the S&P 500 as your passive benchmark. Currently the S&P 500 is valued at 1202. The value of the S&P 500 futures contract is equal to $250 times the value of the index. The beta of the futures contract is 1.0.
-Refer to Exhibit 21.9.If you anticipate a cash inflow of $2 million next week,how many futures contracts should you buy or sell in order to mitigate the effect of this inflow on the portfolio's performance (rounded to the nearest integer) ?

• A) Sell 6 contracts
• B) Buy 6 contracts
• C) Sell 8 contracts
• D) Buy 8 contracts
• E) None of the above

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Definitions:

General Adaptation Syndrome

A three-stage response (alarm, resistance, exhaustion) that the body has to stress, described by Hans Selye.

Energy Reserves

Energy reserves are stored energy in the body, mainly composed of fat, glycogen, and proteins, that can be used as fuel for physical activities.

Physiological Exhaustion

A state of extreme physical or mental fatigue resulting from severe stress or overexertion, impairing bodily functions.

Sympathetic Nervous System

A part of the autonomic nervous system that activates the body's fight-or-flight response.