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Nikolaj Mieritz
on Nov 04, 2024

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Assume that you manage a $2 million portfolio that pays no dividends and has a beta of 1.3 and an alpha of 2% per month. Also, assume that the risk-free rate is 0.05% (per month) and the S&P 500 is at 1,500. If you expect the market to fall within the next 30 days, you can hedge your portfolio by ______ S&P 500 futures contracts (the futures contract has a multiplier of $250) .

A) selling 1
B) selling 7
C) buying 1
D) buying 7
E) selling 11

S&P 500 Futures Contracts

Financial contracts that speculate on the future value of the S&P 500 index, allowing investors to bet on the direction of the U.S. stock market.

Beta

A measure of a stock's volatility in relation to the overall market; a beta greater than 1 indicates higher than market volatility.

Risk-Free Rate

The hypothetical return rate on an investment that carries no risk, commonly depicted through the yield of government bonds.

  • Acquire knowledge on the theories of alpha and beta as they apply to the performance and risk control of hedge funds.
  • Learn about the methods employed by hedge funds for minimizing risks and maximizing returns through investments.
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Benson PampackalNov 10, 2024
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