Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. on september 1, an investor holds 10,000 shares of

On September 1, an investor holds 10,000 shares of a certain stock. The market price...

70.2K

Verified Solution

Question

Finance

On September 1, an investor holds 10,000 shares of a certain stock. The market price is $62.50 per share. The investor is interested in hedging against movements in the market over the next month and decides to use the September S&P 500 futures contract. The futures price on the index is currently 1,000 and one contract is for delivery of $250 times the index. The beta of the stock is 0.8. Using the information above, answer the following questions:

i) With a hedging motive, which position should the investor take in S&P500 futures and in how many contracts?

ii) If the market goes down and the index settles at 750 next month, what will be the gain/loss on the investors stock portfolio?

Will her futures position help her recover the loss? Explain through relevant computations.

Answer & Explanation Solved by verified expert
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

Other questions asked by students