Ask Question
16 November, 03:11

A company has a $36 million portfolio with a beta of 1.2. The futures price for a contract on an index is 900. Futures contracts on $250 times the index can be traded. What trade is necessary to reduce beta to 0.9

+3
Answers (1)
  1. 16 November, 03:28
    0
    Answer: Short 48 contracts.

    Explanation: Portfolio beta is a systematic measure, that checks all the risk in a portfolio of investments. It is used in calculating the Treynors measure in a portfolio.

    The trade necessary to reduce beta;

    Take the change in beta

    1.2 - 0.9 = 0.3

    Using the beta formula; beta coefficient multiplied by the weight of the portfolio.

    0.3 * $36,000,000 = $10,800,000

    The future contract times the index can be traded on

    900 * $250 = $225,000

    Therefore the trade necessary to reduce beta will be

    $10,800,000 : $225,000 = 48

    This means that we have to short 48 contract if we want beta to reduce from 1.2 to 0.9
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “A company has a $36 million portfolio with a beta of 1.2. The futures price for a contract on an index is 900. Futures contracts on $250 ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers