Equitizing Cash & Pre-investing in Equity

R41 of CFAI text Vol 5. I know that cash is available now in Equitizing Cash while cash will only be available at a time ponit (e.g., in 3 months) in future. By buying futures contract, the investor can realize his investing in the equity at that time ponit in future for both cases. Basically, the concept shall be same. However, why beta is not involved in determining the number of futures contract in Equitizing Cash ? Can we equtize the cash to invest in some equities with beta other than 1 ? Can we buy some futures contract with beta other than 1 in Equitizing Cash ?

If you are reading CFAI books, it’s explained there. In the case of equitizing cash using an index future, the beta of the future and the beta of the index MUST be the same (both be 1 or both be 1.5).

i dont recall the material going too deep into the equitizing of cash with individual stocks as much as they do with the stock index. either way, they say the synthesized stock is equal to the Risk free bond and future position. only difference on the index is they say bond"s" and future position on stock index. I dont think beta should play a role anywhere in these calculations. “Can we equitize the cash to invest in equities with beta other than 1?” sure, why not? use the same formula. beta never makes an appearance in it. instead of Valuing a stock with a Beta of 1 you can do a different stock with a beta of 2 and you would still purchase the same number of contracts. i think the bottom line is that you earn whatever the equity position would have made while maintaining liquidity. maybe i dont understand the question

The beta never makes an appearance because the beta of the stock portfolio and beta of future are the same. They cannot be different. Please read page 363 of CFAI text.

i pulled out my text and saw my stopping point for today was pg 360! what are the chances? anyways I wont get until 363 until Sunday. I take it 1 page at a time.

No problem. This forum has a socratic way of getting the truth out.

mik82 Wrote: ------------------------------------------------------- > The beta never makes an appearance because the beta of the stock portfolio and beta > of future are the same. They cannot be different. Please read page 363 of CFAI text. So, only stock Index and stock Index futures (rather than individual stock and individual stock futures) are used in Creating Equity out of Cash (including Creating a Synthetic Index Fund and Equitizing Cash) and Creating Cash out of Equity ?

In equation 5 of page 351 and equation 6 of page 356, a significant difference is that the latter takes into account of the risk-free rate. Why?

Im really confused what is the wole concept of equitize cash

and the difference with synthetic cash

http://www.analystforum.com/forums/cfa-forums/cfa-level-iii-forum/91310748

See post 5.