1. A company has a $36 million portfolio with a beta of 1.2. The futures price for a contract on an index is 900. Futures contracts on $250 times the index can be traded. What trade is necessary to increase beta to 2.4?
a. Long 192 contracts
b. Short 192 contracts
c. Long 48 contracts
d. Short 48 contracts
2. A stock is expected to pay a dividend of $1.50 per share in one months and in 4 months. The stock price is $50, and the risk-free rate of interest is 7% per annum with continuous compounding for all maturities. An investor has just taken a long position in a six-month forward contract on the stock.
Three months later, the price of the stock is $45 and the risk-free rate of interest is still 7% per annum. What is the value of the short position in the forward contract?
+2.01
-4.37
+4.37
-2.01