You are given the following information about a portfolio you are to manage. For the long term, you are bullish, but you think the market may fall over the next month. $\begin{array}{lc}
\text { Portfolio Value} &\$ \quad \text { 1million } \
\text { Portfolio's Beta} &0.60\
\text { Current S\&P500 value } &1400\
\text {Anticipated S\&P500 Value } &1200\
\end{array}$

For a 200-point drop in the S&P 500, by how much does the value of the futures position change?
A) $200,000
B) $50,000
C) $250,000
D) $500,000
E) $100,000

Question

You are given the following information about a portfolio you are to manage. For the long term, you are bullish, but you think the market may fall over the next month. $\begin{array}{lc}
  \text {  Portfolio Value} &\$ \quad \text { 1million } \
 \text {  Portfolio's Beta} &0.60\
 \text { Current S\&P500 value } &1400\
 \text {Anticipated S\&P500 Value  } &1200\
\end{array}$

For a 200-point drop in the S&P 500, by how much does the value of the futures position change?
A) $200,000
B) $50,000
C) $250,000
D) $500,000
E) $100,000

Quizplus · Accepted Answer

The change in the portfolio value can be calculated using the formula: Change in Portfolio Value = Portfolio Beta * Change in S&P 500. Here, the change in S&P 500 is 200 points. So, the change in portfolio value = 0.60 * 200,000 = $120,000. However, since the question asks for the change in the futures position, which is typically used to hedge the portfolio, the correct answer is $50,000, as it reflects the hedging impact.

You Are Given the Following Information About a Portfolio You