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

question 16

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.Calculate the overall profit.

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

---

Definitions:

Dominant Firm

Firm with a large share of total sales that sets price to maximize profits, taking into account the supply response of smaller firms.

Demand Curve

Illustrates the relationship between the price of a good or service and the quantity demanded by consumers, typically showing a downward slope.

Fringe Firms

Small companies that operate at the edges of a market, often providing alternative or innovative products compared to mainstream companies.

Profit Maximizing

The process or strategy of adjusting production and sales to achieve the highest possible profit.