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

question 58

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 number of contract required to hedge the risk exposure and indicate whether the manager should be short or long.

• A) 100 contracts long.
• B) 82 contracts short.
• C) 82 contracts long.
• D) 100 contract short.
• E) None of the above.

---

Definitions:

Reduce Output

A decision or strategy to decrease the quantity of goods or services produced by a company or economy.

Increase Output

To raise the quantity of goods or services produced within a given time period.

Pure Monopoly

A market structure where a single firm is the sole producer and seller of a product or service, with no close substitutes available.

Profit-Maximizing Outputs

The level of production at which a company can achieve the highest possible profit.