Question

An equity portfolio is worth $100 million with the benchmark of the Dow Jones Industrial Average. The Dow is currently at 20,000, and the corresponding portfolio beta is 0.96. The futures multiplier for the Dow is 10. What is the correct number of contracts and position needed to double the portfolio beta?

Long 300 contracts.
Long 480 contracts.
Short 480 contracts.
Short 320 contracts.

Answer 1

b) long 480 contracts

Step-by-step explanation:

Given:

Worth of equity portfolio = $100m

Dow = 20,000

Portfolio beta = 0.96

Features multiplier, Fm = 10

For number of contracts needed to double portfolio beta, we have:

`(V_p(B_T-B_o))/(V_f*F_m)`

=
`(100*10^6(1.92-0.96))/(20000*10)`

= 480

Therefore, the correct number of contracts and position needed to double the portfolio beta is 480 contracts

Answer 2

Long 480 contracts.

Step-by-step explanation:

Number of contracts = 100 × 10^6 × (0.96 ×2 - 0.96) ÷ (20000 × 10)

= 480