The S&P; 500 Index is currently at 1,500. You manage a $18 million indexed equit

Question

The S&P; 500 Index is currently at 1,500. You manage a $18 million indexed equity portfolio. The S&P; 500 futures contract has a multiplier of $250. If you are temporarily bearish on the stock market, how many contracts should you sell to fully eliminate your exposure over the next six months? If T-bills pay 2.0% per six months and the semiannual dividend yield is 1.8%, what is the parity value of the futures price? (Do not round intermediate calculations.) Instead of holding an indexed portfolio, you hold a portfolio of only one stock with a beta of 0.6, how many contracts would you now choose to sell? (Round your answer to the nearest whole number.)

Explanation / Answer

a) Number of contracts would be 18,000,000 / 250 = 72,000 contracts

b) = spot price * ( 1+ riskfree rate - income yield)

= 250 * ( 1+2% - 1.8%)

= 250 * (1+.02%)

= $ 250.05

c)

Total numbers of contracts would equal to = 72,000 * .6 = 43,200

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