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:

Optimal Taxation

The theory or practice of determining the most efficient and effective way of levying taxes to generate government revenue with minimal economic distortion or inefficiency.

Excess Burden

The societal expense resulting from market inefficiency, which arises when supply and demand are not in balance.

Progressive

A term often used in the context of taxation or political ideology, indicating policies or stances that aim to redistribute resources from the more affluent to the less affluent.

Income Tax

Tax levied by a government directly on income, especially an annual tax on personal income.