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

question 93

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 $10,000,000 and the stock index future is priced at 1300 with a multiplier of 250. Calculate the profit (loss) on the stock index futures position.

• A)-$1,050,000
• B)-$550,000
• C)-$50,000
• D)$550,000
• E)$1,050,000

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Definitions:

Absolute Advantage

The ability of a country or entity to produce a good or service in a more efficient manner (with fewer resources or in less time) than other countries or entities.

Opportunity Cost of Production

The value of the best alternative use of resources that could have been used for producing something else.

Labor Cost

Represents the total expenses incurred by employers to compensate their workforce, including wages, benefits, and taxes.

Ad Valorem Tariffs

A type of tariff calculated as a percentage of the value of the imported goods, as opposed to a fixed fee per unit.