You own a portfolio that is valued at $11,190,000 and has a beta of 1.43. You would like to create a riskless portfolio by hedging using S&P 500 futures contracts. The contract size is $250 times the index level. How many futures contracts do you need to acquire if the current S&P 500 index is 1730?
A)short 28 contracts
B)short 37 contracts
C)long 28 contracts
D)long 37 contracts
E)short 43 contracts

Question

Quizplus · Accepted Answer

To hedge the portfolio, you need to short futures contracts. The number of contracts is calculated as: (Portfolio Value * Portfolio Beta) / (Contract Size * Index Level) = ($11,190,000 * 1.43) / ($250 * 1730) = 37 contracts.

You Own a Portfolio That Is Valued at $11,190,000 and Has