USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 128

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
As a portfolio manager, you are responsible for a $150 million portfolio, 90 percent of which is invested in equities, with a portfolio beta of 1.25. You are utilizing the S&P 500 as your passive benchmark. Currently the S&P 500 is valued at 1202. The value of the S&P 500 futures contract is equal to $250 times the value of the index. The beta of the futures contract is 1.0.
-Refer to Exhibit 15.11. If you anticipate a cash inflow of $2 million next week, how many futures contracts should you buy or sell in order to mitigate the effect of this inflow on the portfolio's performance (rounded to the nearest integer) ?

• A) sell six contracts
• B) buy six contracts
• C) sell eight contracts
• D) buy eight contracts
• E) buy seven contracts

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Definitions:

Equilibrium Price

The price at which the quantity of goods supplied equals the quantity of goods demanded in the market.

Purely Competitive Industry

An industry consisting of many buyers and sellers, where each firm is a price taker and the products are homogeneous.

Pure Monopoly Model

Describes a market structure in which a single seller sells a unique product in the market without any competition.

Productive Efficiency

Refers to a situation where an economy or entity cannot produce more of one good without affecting the production of another good, operating at the lowest possible cost per unit.