Exhibit 21.11 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 79

Multiple Choice

Exhibit 21.11
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider a portfolio manager with a $10,000,000 equity portfolio under management. The manager wishes to hedge against a decline in share values using stock index futures. Currently a stock index future is priced at 1350 and has a multiplier of 250. The portfolio beta is 1.50.
-Refer to Exhibit 21.11. Assume that a month later the equity portfolio has a market value of $9,500,000 and the stock index future is priced at 1300 with a multiplier of 250. Calculate the profit on the equity position.

• A)$100,000
• B)$200,000
• C)-$200,000
• D)-$500,000
• E)-$600,000

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Definitions:

Insurance Costs

The expenses incurred by individuals or companies for purchasing insurance coverage, which can include premiums for health, property, liability, and other types of insurance.

Interest

The cost of using someone else's money or the return on invested capital.

Land Improvements

Enhancements made to a plot of land to increase its value, such as landscaping, fencing, and installing irrigation systems.

Fixed Assets

Long-term tangible assets used in business operations, not expected to be converted into cash within a year, such as buildings and machinery.