Suppose You Wish to Hedge a Stock Portfolio with an Index

question 95

Multiple Choice

Suppose you wish to hedge a stock portfolio with an index futures contract. An increase in the quoted futures price of the index will _________ the number of futures needed for the hedge.

• A) increase
• B) decrease
• C) Not change
• D) increase only if the beta of the portfolio is greater than one
• E) decrease only if the beta of the portfolio is greater than one

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Definitions:

Argumentative

Characterized by or displaying the tendency to engage in or be prone to arguing or disputes.

Critical Thinking

Undertaking an impartial investigation and analysis of a topic with the purpose of making an informed decision.

Context of Information

The circumstances, background, or conditions that provide meaning to a piece of information, influencing its interpretation and understanding.

Prestige of Authority

The respect and admiration that an individual commands from others by virtue of their position or status in a hierarchy.