A fund manager has a portfolio worth $50 million with a beta
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A fund manager has a portfolio worth $50 million with a beta of 0.87. The manager is concerned about the performance of
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A fund manager has a portfolio worth $50 million with a beta of 0.87. The manager is concerned about the performance of the market over the next 2 months and plans to use 3-month futures contracts on the S&P 500 to hedge the risk. The current level of the index is 1,250, one contract is on 250 times the index, the risk-free rate is 6% per annum, and the dividend yield on the index is 3% per annum. The current 3-month futures price is 1,259. (a) What position should the fund manager take to hedge all exposure to the market over the next 2 months? (b) Calculate the effect of your strategy on the fund manager
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