A company has a $10 million stock portfolio with a beta of 1.25 when measured against the S&P 500 stock index. The compa

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A Company Has A 10 Million Stock Portfolio With A Beta Of 1 25 When Measured Against The S P 500 Stock Index The Compa 1 (52.81 KiB) Viewed 42 times

A company has a $10 million stock portfolio with a beta of 1.25 when measured against the S&P 500 stock index. The company would like to hedge the stock portfolio completely against decreases in stock prices over the next 3 months. The index level is 3,896 and the dividend yield on the index is 2% annually compounded The futures price for a contract on the index with a delivery date in 4 months is 3,996. Futures contracts on $250 times the index can be traded. The risk free rate 3% annually compounded At the end of 3 months, the index level is 3,596. Which of the following is correct? O a. The fair price of the futures contract in 3 months should be 3,698.94 Ob. The value of the completely hedged stock portfolio at the end of 3 months would be close to) $10.323 million OC. The loss on the unhedged stock portfolio at the end of 3 months would be greater than 10% od. The company should sell 11 futures contracts on the S&P 500 stock index to completely hedge the stock portfolio