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"I have only asked one question today... Hi there,...




"I have only asked one question today... Hi there, I was told by Ashley Rockefeller that I can pose all 3 question at any time within the day. I dont understand why my question is being denied... Can you explain?? "(15 marks) You manage a portfolio that is currently all invested in equities in companies in five major Canadian industries. The market value involved and beta for each industry are shown in the table below. Industry MV Beta Oil and Gas $1,000,000 1.2 Technology 600,000 1.5 Utilities 1,500,000 0.8 Financial 800,000 1.3 Pharmaceutical 1,300,000 1.1 You believe that the Canadian equity market is on the verge of a big but short-lived downturn. You would move your portfolio temporarily into T-bills, but you do not want to incur the transaction costs of liquidating and reestablishing your equity position. Instead, you decide to hedge your portfolio with three-month S&P/TSX 60 index futures contracts for one month. Currently, the level of the S&P/TSX 60 index is 678.68, the three-month futures price of the S&P/TSX 60 is 665.60, and one contract is for $200 times the index. The annual simple risk-free rate of return is 1%. a. How many futures contracts should you use? Long or short? (5 marks)


Paper#7252 | Written in 18-Jul-2015

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