A Portfolio Manager in Charge of a Portfolio Worth $10

question 5

Multiple Choice

A portfolio manager in charge of a portfolio worth $10 million is concerned that stock prices might decline rapidly during the next six months and would like to use put options on an index to provide protection against the portfolio falling below $9.5 million.The index is currently standing at 500 and each contract is on 100 times the index.What position is required if the portfolio has a beta of 1?

• A) Short 200 contracts
• B) Long 200 contracts
• C) Short 100 contracts
• D) Long 100 contracts

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Definitions:

Production Possibility Frontier

A curve depicting all maximum output possibilities for two or more goods given a set of inputs (resources, labor, etc.), assuming all are efficiently used.

Efficiently

The manner in which resources are utilized in the most optimal way to produce goods or services without waste.

Comparative Advantage

An entity's capability to offer a product or service at a reduced opportunity cost than competitors.

Vintner

is a person engaged in winemaking, especially one who is responsible for the production of wine at a vineyard or winery.