You Manage $15 Million Hedge Fund Portfolio with Beta =

question 14

Multiple Choice

You manage $15 million hedge fund portfolio with beta = 1.2 and alpha = 2% per quarter. Assume that the risk-free rate is 2% per quarter and the current value of the S&P 500 index = 1200. You want to exploit positive alpha but you are afraid are afraid that the share market may fall and want to hedge your portfolio by selling the 3-month S&P 500 future contracts. The S&P contract multiplier is $250. How many S&P 500 contracts do you need to sell to hedge your portfolio?

• A)25
• B)30
• C)40
• D)50

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Definitions:

Special Order

A customer request for a product or service that is not normally offered by the business, often requiring unique production or procurement efforts.

Selling Price

The amount of money charged for a product or service, or the sum of the cost plus profit.

Variable Costs

Expenses that change in proportion to the production output or sales amount.

Target Costing

A pricing strategy in which the selling price of a product is set first, and then the target cost is determined by subtracting a desired profit margin from the selling price.