andytrader

A manager of a $10,000,000 portfolio wants to increase beta from the current value of 0.9 to 1.1. The beta on the futures contract is 1.2 and the futures price is $245,000. Using futures contracts, what strategy would be appropriate?

A) Long 11 contracts.

B) Long 7 contracts.

C) Short 7 contracts.

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Number of contracts = 6.80 = (1.1 − 0.9) × ($10,000,000) / (1.2 × $245,000), and this rounds up to seven. Since the goal is to increase beta, the manager should go long.

andytrader

A manager of a $20,000,000 portfolio wants to decrease beta from the current value of 0.9 to 0.5. The beta on the futures contract is 1.1 and the futures price is $105,000. Using futures contracts, what strategy would be appropriate?

A) Long 69 contracts.

B) Short 19 contracts.

C) Short 69 contracts.

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Number of contracts = -69.26 = (0.5 − 0.9) × ($20,000,000) / (1.1 × $105,000), and this rounds down to 69 (absolute value). Since the goal is to decrease beta, the manager should go short which is also indicated by the negative sign.