Important Question of Beta Management - Future contract Derivatives
Channel: PAVAN SIR CLASSES
Date: 2020-09-07

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Question
BSE 5000
Value of portfolio Rs. 10,10,000
Risk free interest rate 9% p.a.
Dividend yield on Index 6% p.a.
Beta of portfolio 1.5
We assume that a future contract on the BSE index with four months maturity is used to hedge the value of portfolio over next three months. One future contract is for delivery of 50 times the index.
Based on the above information calculate:
(i) Price of future contract.
(ii) The gain on short futures position if index turns out to be 4,500 in three months.