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.
