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:

Consume

The action of using up a resource or goods, often associated with the act of purchasing and using products and services.

Bushels

A unit of volume that is commonly used in agriculture for measuring quantities of grain, fruit, and other agricultural produce, typically equal to about 35.24 liters in the U.S.

Harvest

The act or duration of harvesting crops.

Grain

A small, hard, dry seed used as food, harvested from cereals or legumes.