Finance Junkie
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Joined: Sat Sep 22, 2012 12:35 pm


Postby AMITAG1990 » Thu Nov 15, 2012 5:06 pm

A fund manager has a portfolio worth $20 million with a beta of 1.2. The manager is concerned about the performance of the market over the next 2 months and plans to use 3-month futures contracts on the Nasdaq to hedge the risk. The current level of index is $1200, one contract is on 500 times the index, the risk free rate is 5% per annum, and the dividend yield on the index is 2% per annum. The current 3-month futures price is 1212. What is the expected value of the hedger’s position over the next two months?
Choose one answer.
a. $20,100,000 Incorrect
b. $19,860,000 Incorrect
c. $20,070,000 Correct
d. $19,500,000 Incorrect
The correct answer is $20,070,000.

Please some one solve this.

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