USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 27

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 outflow of $5 million next week, how many futures contracts should you buy or sell in order to mitigate the effect of this outflow on the portfolio's performance (rounded to the nearest integer) ?

• A) sell 21 contracts
• B) buy 21 contracts
• C) sell 17 contracts
• D) buy 17 contracts
• E) buy 13 contracts

---

Definitions:

Deed of Trust

A legal document in some states that involves a borrower, lender, and a trustee, securing a real estate transaction as collateral for a loan.

Surety

A person or entity that takes responsibility for the performance of another's obligations, such as fulfilling the terms of a contract or repaying a loan.

Guarantor

An individual or entity that agrees to be responsible for another's debt or obligations if the original party fails to meet their commitments.

Trust Deed

A legal document in real estate transactions where the title of a property is transferred to a trustee as security for a loan until the borrower repays the loan.