It is July 16. A company has a portfolio of stocks worth $100 million. The beta of the portfolio is 1.2. The company would like to use the December futures contract on a stock index to change beta of the portfolio to 0.5 during the period July 16 to November 16. The index is currently 2,000, and each contract is on $250 times the index. a)What position should the company take? b) Suppose that the company changes its mind and decides to increase the beta of the portfolio from 1.2 to 1.5. What position in futures contracts should it take?

It is July 16. A company has a portfolio of stocks worth $100 million. The beta of the portfolio is 1.2. The company would like to use the December futures contract on a stock index to change beta of the portfolio to 0.5 during the period July 16 to November 16. The index is currently 2,000, and each contract is on $250 times the index. a)What position should the company take? b) Suppose that the company changes its mind and decides to increase the beta of the portfolio from 1.2 to 1.5. What position in futures contracts should it take?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section20.A: The Black-scholes Option Pricing Model

Problem 1P

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It is July 16. A company has a portfolio of stocks worth $100 million. The beta of theportfolio is 1.2. The company would like to use the December futures contract on a stock index to change the beta of the portfolio to 0.5 during the period July 16 to November 16. Theindex futures price is currently 2,000 and each contract is on $250 times the index. (a) Whatposition should the company take? (b) Suppose that the company changes its mind anddecides to increase the beta of the portfolio from 1.2 to 1.5. What position in futurescontracts should it take?
In July, a company has a portfolio of stocks worth $100 million. The beta of the portfolio is 1.2. The company would like to use the December futures contract on a stock index to change beta of the portfolio to 0.5 during the period July to November. The index is currently 1,000, and each contract is on $250 times the index. What position should the company take? Short 280 contracts Short 680 contracts Long 280 contracts Long 680 contracts
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