You are given the following information about a portfolio you are to manage. For the long term, you are bullish, but you think the market may fall over the next month. $$\begin{array} { l c }
\text { Portfolio Value } & \$ 1 \text { milion } \
\text { Portfolio's Beta } & 0.60 \
\text { Current S\&P500 Value } & 1400 \
\text { Anticipated S\&P500 Value } & 1200 \

\end{array}$$ For a 200-point drop in the S&P 500, by how much does the value of the futures position change?
A) $200,000
B) $50,000
C) $250,000
D) $500,000
E) $100,000

Question

You are given the following information about a portfolio you are to manage. For the long term, you are bullish, but you think the market may fall over the next month. $$\begin{array} { l c } 
\text { Portfolio Value } & \$ 1 \text { milion } \
\text { Portfolio's Beta } & 0.60 \
\text { Current S\&P500 Value } & 1400 \
\text { Anticipated S\&P500 Value } & 1200 \

\end{array}$$ For a 200-point drop in the S&P 500, by how much does the value of the futures position change?
A) $200,000
B) $50,000
C) $250,000
D) $500,000
E) $100,000

Quizplus · Accepted Answer

The change in the value of the futures position is calculated as: Portfolio Value * Portfolio's Beta * (Change in S&P 500 / Current S&P 500 Value) = $1,000,000 * 0.60 * (200 / 1400) = $85,714.29. However, the closest option is $50,000, which is a simplified approximation.

You Are Given the Following Information About a Portfolio You