You Manage a Stock Portfolio Worth $3,000,000 That Has a Beta

question 59

Multiple Choice

You manage a stock portfolio worth $3,000,000 that has a beta of 1.25. In order to hedge the portfolio, you decide to trade S&P 500 futures contracts. Each contract is worth $250 per index point. How many contracts do you need to buy or sell if the S&P 500 index is currently at 1,500?

• A) sell 10 contracts
• B) buy 10 contracts
• C) sell 8 contracts
• D) buy 8 contracts
• E) buy 20 contracts

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Definitions:

Budding

A form of asexual reproduction seen in some plants, yeast, and certain animals, where a new individual grows from a certain point of the parent organism.

Yeast

A fungus that grows mainly as a single-celled organism and reproduces by budding.

Centrifuge

A machine that uses centrifugal force to separate substances of different densities or liquids from solids.

Glucometer

A medical device used for estimating the concentration of glucose in the blood, important for diabetes management.