A Portfolio Manager in Charge of a Portfolio Worth $10

question 7

Multiple Choice

A portfolio manager in charge of a portfolio worth $10 million is concerned that stock prices 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 position is required if the portfolio has a beta of 1?

• A) Short 200 contracts
• B) Long 200 contracts
• C) Short 100 contracts
• D) Long 100 contracts

---

Definitions:

First Impression

The initial judgment or perception one forms about another person or situation, based typically on very limited information.

Stereotype

A widely held but fixed and oversimplified image or idea of a particular type of person or thing, often based on limited or superficial information.

Perception Components

The elements that contribute to the process of interpreting and understanding sensory information, including selection, organization, and interpretation.

Selectivity

The action or process of choosing or selecting something from a group according to specific criteria.