A Company Has a $36 Million Portfolio with a Beta

question 9

Multiple Choice

A company has a $36 million portfolio with a beta of 1.2.The futures price for a contract on an index is 900.Futures contracts on $250 times the index can be traded.What trade is necessary to reduce beta to 0.9?

• A) Long 192 contracts
• B) Short 192 contracts
• C) Long 48 contracts
• D) Short 48 contracts

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Definitions:

MPC (Marginal Propensity To Consume)

The proportion of an additional income that an individual tends to spend on consumption rather than saving.

GDP

Gross Domestic Product refers to the total monetary value of all goods and services produced within a country's borders in a given time frame, serving as an indicator of its economic performance.

Public Debt

The total amount of money that a government has borrowed and still owes.

Federal Budget Deficit

The financial shortfall when a government's expenditures exceed its revenues in a given fiscal year.