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Your company manages a $100 million stock portfoli...




Your company manages a $100 million stock portfolio that is indexed to the S&P 500. The chief market strategist at a Wall Street firm, who had been bullish, suddenly changed their view in light of the pending Middle East War and stated that equity prices would go down considerably in the next 3 months. You have been asked to structure a hedge to eliminate this risk using S&P 500 futures. From the following information: S&P 500 current spot price today 945.0 S&P 500 3 month futures price 958.0 Dividend yield on your portfolio 3.25% S&P 500 futures multiplier $250 o Calculate how many futures contracts would be needed to hedge your $100 million portfolio. o Compute the return your portfolio on your portfolio with the futures contract in place (hint: round your answer in part A. to the nearest whole number) over the next 3 months.


Paper#4167 | Written in 18-Jul-2015

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