Multiple Choice
You manage a $15 million hedge fund portfolio with beta = 1.2 and alpha = 2% per quarter. Assume the risk-free rate is 2% per quarter and the current value of the S&P 500 Index is 1,200. You want to exploit the positive alpha, but you are afraid that the stock market may fall and you want to hedge your portfolio by selling 3-month S&P 500 future contracts. The S&P contract multiplier is $250.
When you hedge your stock portfolio with futures contracts, the value of your portfolio beta is ________.
A) 0
B) 1
C) 1.2
D) The answer cannot be determined from the information given.
Correct Answer:
Verified
Correct Answer:
Verified
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