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:

Limited Partnership

is a form of partnership characterized by having one or more general partners with unlimited liability, and one or more limited partners whose liability is limited to the amount of their investment.

Management Participation

The involvement or engagement of managerial staff in the planning and decision-making processes of a business or organization.

Liability

The state of being legally responsible for something, particularly in terms of debts or legal obligations.

Fiduciary Duty

An obligation one party (fiduciary) has to act in the best interest of another (the principal) in situations that require trust, honesty, and loyalty.