All Else the Same, as the Price of a S&P

question 13

Multiple Choice

All else the same, as the price of a S&P 500 futures used to hedge an equity portfolio increases, the number of contracts needed to hedge the portfolio will:

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

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Definitions:

Interest Payments

The amount paid by a borrower to a lender over a period of time for the use of borrowed money, typically expressed as an annual percentage rate.

Earnings Decrease

This term refers to a reduction in a company’s net income or earnings per share (EPS) in comparison to a previous period, indicating a decline in profitability.

Industry Averages

Statistical measures that represent the average or typical performance within a particular industry or sector.

Common-Sized Financial Statements

Financial reports where all line items are presented as a percentage of a significant total, facilitating comparison across different periods or companies.