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:

Operating Activity

Transactions that relate to the primary operations of a company, such as sales revenue and expense activities.

Sale of Equipment

Sale of equipment refers to the process of selling off business assets, such as machinery or vehicles, which can impact a company's financial statements.

Cash Received

The total amount of cash collected by a business during a specific period, including all sources of income.

Operating Activities

Activities related to the core business functions of a company, including production, sales, and the delivery of services.