A Portfolio Manager in Charge of a Portfolio Worth $10

question 17

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 position is required if the portfolio has a beta of 0.5?

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

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Definitions:

Pollution Control

The process of reducing or eliminating the release of pollutants into the environment, typically involving regulations and technologies designed to minimize environmental damage.

Optimal Pollution Control

The regulation of pollution to maximize social welfare by balancing the costs of pollution control against the benefits of reducing pollution.

Economists

Professionals who study how societies use scarce resources to produce valuable goods and services and distribute them among different people.

Positive Externalities

Benefits that are enjoyed by a third-party or the society at large as a result of an economic transaction, but these benefits are not reflected in the market price.