If a financial institution uses stock index futures to completely hedge the systematic component of its stock portfolio,the resulting portfolio will have a beta close to ________.
A) 0.00
B) 1.00
C) 2.00
D) 0.50.

Question

Quizplus · Accepted Answer

If a financial institution uses stock index futures to completely hedge the systematic component of its stock portfolio, the resulting portfolio will have a beta close to zero, as the systematic risk has been eliminated. This means that the portfolio's returns are independent of the market movements and the portfolio has a lower risk.

If a Financial Institution Uses Stock Index Futures to Completely