Exhibit 21.8 Use the Information Below for the Following Problem(S)

question 82

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:

Random Assignment

A method used in experiments for distributing participants among various groups in a study, ensuring that each has an equal chance of being assigned to any group, to minimize bias.

Field Settings

Real-world environments outside of the laboratory where research is conducted or observations are made in a natural context.

Quasi-Experimental Design

A research design that attempts to establish a cause-and-effect relationship but does not employ random assignment to conditions, making it less strict than a true experimental design.

Random Assignment

The process of allocating participants randomly to different groups in an experiment to ensure each group is similar at the start.