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

question 8

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.Assume that a month later the equity portfolio has a market value of $9,500,000 and the stock index future is priced at 1300 with a multiplier of 250.Calculate the profit on the equity position.

• A) $100,000
• B) $200,000
• C) -$200,000
• D) -$500,000
• E) -$600,000

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Definitions:

Cumulative Preferred Stock

A type of preferred stock that entitles the holder to receive dividends in arrears before common stockholders can receive any dividends.

Liability

Any financial obligation or debt that an entity is responsible for paying to another party.

Current Asset

An asset expected to be converted into cash, sold, or consumed within one year or within the business's normal operating cycle if longer.

Treasury Stock

Shares that were issued and subsequently repurchased by the company, reducing the amount of outstanding stock on the open market.