Deck 5: Hedge Funds, Futures, Risk Management, Investors and the Investment Process

Question 1

You manage $15 million hedge fund portfolio with beta = 1.2 and alpha = 2% per quarter. Assume that the risk-free rate is 2% per quarter and the current value of the S&P 500 index = 1200. You want to exploit positive alpha but you are afraid are afraid that the share market may fall and hedge your portfolio by selling the 3-month S&P 500 future contracts. The S&P contract multiplier is $250. When you hedge your share portfolio with futures contracts the value of your portfolio beta is ________.

A) 0
B) 1
C) 1.2
D) Beta cannot be determined from information given

Answer 1

0

Question 2

How much is the portfolio expected to be worth 3 months from now?

A) $15 000 000
B) $15 450 000
C) $15 600 000
D) $16 000 000

Answer 2

$15 600 000

Question 3

Suppose that the pre-tax holding period returns on two shares are the same. Share A has a high dividend payout policy and share B has a low dividend payout policy. If you are a high tax rate individual and do not intend to sell the shares during the holding period, ________.

A) Share A will have a higher after-tax holding period return than Share B
B) the after-tax holding period returns on Shares A and B will be the same
C) Share B will have a higher after-tax holding period return than Share A
D) it is impossible to determine which share will have a higher after-tax holding period return given the information available

Answer 3

Share B will have a higher after-tax holding period return than Share A

Question 4

On Monday morning you sell one June T-bond futures contract at 97:27 or for $97 843.75. The contract's face value is $100 000. The initial margin requirement is $2 700 and the maintenance margin requirement is $2 000 per contract. Use the following price data to answer the question. After Monday's close the balance on your margin account will be ________.

A) $2 700.00
B) $2 000.00
C) $3 137.50
D) $2 262.50

Question 5

On Monday morning you sell one June T-bond futures contract at 97:27 or for $97 843.75. The contract's face value is $100 000. The initial margin requirement is $2 700 and the maintenance margin requirement is $2 000 per contract. Use the following price data to answer the question. At the close of day Tuesday your cumulative rate of return on your investment is

A) 16.2%
B) -5.8%
C) -0.16%
D) -2.2%

Question 6

On Monday morning you sell one June T-bond futures contract at 97:27 or for $97 843.75. The contract's face value is $100 000. The initial margin requirement is $2 700 and the maintenance margin requirement is $2 000 per contract. Use the following price data to answer the question. On which of the given days do you get a margin call?

A) Monday
B) Tuesday
C) Wednesday
D) None

Question 7

On Monday morning you sell one June T-bond futures contract at 97:27 or for $97 843.75. The contract's face value is $100 000. The initial margin requirement is $2 700 and the maintenance margin requirement is $2 000 per contract. Use the following price data to answer the question. Your cumulative rate of return on your investment after Wednesday is a/an ________.

A) 79.9% loss
B) 2.6% loss
C) 33.0% gain
D) 53.9% loss