Exhibit 21.8 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 30

Multiple Choice

Exhibit 21.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider a portfolio manager with a $20,500,000 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 1250 and has a multiplier of 250. The portfolio beta is 1.25.
-Refer to Exhibit 21.8. Assume that a month later the equity portfolio has a market value of $20,000,000 and the stock index future is priced at 1150 with a multiplier of 250. Calculate the profit on the stock index futures position.

• A)$1,550,000
• B)-$2,000,000
• C)$2,050,000
• D)-$5,000,000
• E)$2,400,000

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Definitions:

Fair Values

The expected value from selling an asset or what it would cost to delegate a liability in an orderly exchange scenario with market participants on the designated assessment date.

Common Stock

A type of security that represents ownership in a corporation, granting shareholders voting rights and a share in the company's profits via dividends.

Acquisition

Acquisition refers to the process of obtaining control of another company or business entity through purchase, takeover, or another means, aimed at expanding operations or entering new markets.

Consolidated Retained Earnings

The cumulative amount of earnings not distributed as dividends to shareholders, reported in the consolidated financial statements of a parent company and its subsidiaries.