All else the same, an increase in the risk of a portfolio as measured by beta will _________ the number of futures contracts needed to hedge the portfolio.
A) increase
B) decrease
C) not change
D) increase or decrease
E) Insufficient information.

Question

Quizplus · Accepted Answer

A higher beta implies more volatility in the portfolio, which translates to a higher risk. In order to hedge this increased risk, more futures contracts will be needed. Therefore, an increase in beta will increase the number of futures contracts needed to hedge the portfolio.

All Else the Same, an Increase in the Risk of a Portfolio