A fund manager expects to receive a cash inflow of R50,000,000 in three months. The manager wishes...

90.2K

Verified Solution

Question

Finance

A fund manager expects to receive a cash inflow of R50,000,000in three months.
The manager wishes to use futures contracts to take a R30,000,000synthetic
position in shares and a R20,000,000 in bonds today. The sharewould have a beta
of 1.05 and the bond a modified duration of 8.25. A share indexfutures contract
with a beta of 0.80 is priced at R300,000 and a bond futurescontract with a
modified duration of 7.50 is priced at R200,000. Calculate thenumber of share
index futures contracts and bond futures contracts that the managerwould have to
trade in order to synthetically take the desired position in theshares and bonds
today. Indicate whether the futures positions are long orshort.

Answer & Explanation Solved by verified expert

4.3 Ratings (653 Votes)

number of share index futures contracts Target beta portfolio betafutures betaportfolio valuefutures value portfolio beta is zero as presently portfolio of shares See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member