A Portfolio Manager in Charge of a Portfolio Worth $10

question 5

Multiple Choice

A portfolio manager in charge of a portfolio worth $10 million is concerned that the market might decline rapidly during the next six months and would like to use options on an index to provide protection against the portfolio falling below $9.5 million. The index is currently standing at 500 and each contract is on 100 times the index. What should the strike price of options on the index be the portfolio has a beta of 1?

• A) 425
• B) 450
• C) 475
• D) 500

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Definitions:

Activity Variance

The difference between the actual and budgeted amount of activity, often used in variance analysis to identify and manage deviations in performance.

Direct Labor

The wages or costs associated with workers who are directly involved in the production of goods or services.

Activity Level

The volume of production or the rate of operations in a business activity.

Flexible Budget

A budget that adjusts or flexes with changes in volume or activity levels, allowing for more precise cost control.