Exhibit 21.11 Use the Information Below for the Following Problem(S)

question 37

Multiple Choice

Exhibit 21.11
Use the Information Below for the Following Problem(S)
Consider a portfolio manager with a $10,000,000 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 1350 and has a multiplier of 250. The portfolio beta is 1.50.
-Refer to Exhibit 21.11.Calculate the number of contract required to hedge the risk exposure and indicate whether the manager should be short or long.

• A) 100 contracts long.
• B) 44 contracts long.
• C) 44 contracts short.
• D) 100 contract short.
• E) None of the above.

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Definitions:

Exercise Option

The act of implementing the right to buy or sell an asset under the terms of an option contract.

Purchase

The act of buying goods, services, or assets.

Liquidate

To convert assets into cash or to settle debts by selling off assets.

Scanlon Plan

A type of gainsharing program where employees share in financial gains through productivity improvements.