Asked by Kassi Stolz on Jun 03, 2024
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You manage a $15 million hedge fund portfolio with beta = 1.2 and alpha = 2% per quarter. Assume the risk-free rate is 2% per quarter and the current value of the S&P 500 Index is 1,200. You want to exploit the positive alpha, but you are afraid that the stock market may fall and you want to hedge your portfolio by selling 3-month S&P 500 future contracts. The S&P contract multiplier is $250.
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
Portfolio Expected Worth
The projected value of a portfolio, considering the potential returns of the investments within it over a specific timeframe.
Alpha
A performance measure indicating the excess return of an investment relative to the return of a benchmark index or risk-free rate.
Risk-Free Rate
The return on an investment with no risk of financial loss, often represented by government bonds.
- Become proficient in the processes of return calculation and the analysis of hedge fund performance.
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Learning Objectives
- Become proficient in the processes of return calculation and the analysis of hedge fund performance.
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