Question 8The January 2023 S&P 500 cash index is 3950 points while the S&P 500 futuresMarch 2023 index is 4000 and the contract value of each index point is $150. Youare convinced the futures market will fall 20% by expiry. You are only prepared tobuy or sell one futures contract. (v) Explain how a fund manager that is manging $100 million pension fund thattrack the S&P 500 index who is concerned the spot index will be 3200 on date ofexpiration of the futures contract in March 2023 can hedge the risk to the pensionfund. Explain the net position if on the March expiration the index reads 3000 or4500.

To minimize the risk of the pension fund, the fund manager should sell a futures contract on the…

The January 2023 S&P 500 cash index is 3950 points while the S&P 500 futures March 2023 index is 4000 and the contract value of each index point is $150. You are convinced the futures market will fall 20% by expiry. You are only prepared to buy or sell one futures contract.

The January 2023 S&P 500 cash index is 3950 points while the S&P 500 futures March 2023 index is 4000 and the contract value of each index point is $150. You are convinced the futures market will fall 20% by expiry. You are only prepared to buy or sell one futures contract.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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(v) Explain how a fund manager that is manging $100 million pension fund that
track the S&P 500 index who is concerned the spot index will be 3200 on date of
expiration of the futures contract in March 2023 can hedge the risk to the pension
fund. Explain the net position if on the March expiration the index reads 3000 or
4500.

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