USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 42

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider a portfolio manager with a $20,500,000 equity portfolio under management. The manager wishes to hedge against a decline in share values using stock index futures. Currently a stock index future is priced at 1250 and has a multiplier of 250. The portfolio beta is 1.25.
-Refer to Exhibit 15.10. Assume that a month later the equity portfolio has a market value of $20,000,000 and the stock index future is priced at 1150 with a multiplier of 250. Calculate the profit on the equity position.

• A) $100,000
• B) -$200,000
• C) $600,000
• D) -$500,000
• E) $400,000

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Definitions:

Departmental Overhead Method

A technique in accounting used to allocate overhead costs to specific departments based on relevant allocation bases such as direct labor hours or machine hours.

Volume-related Measures

Quantitative assessments related to the amount or size of something, especially used in the context of production and sales.

Overhead Costing Accuracy

The degree to which allocated overhead costs accurately represent the actual expenses incurred by the production process or specific products.

Plantwide Overhead Rate

An overhead allocation rate used throughout an entire plant or company to allocate indirect costs to products.