I obtained this question from a previous mock exam (2009 CFA Level 3 PM Question 47)
- To achieve Jeffrie’s objective, the number of US mid-cap equity futures contracts that Michael will sell is closest to?
The portfolio is 75,000,000. The US Risk Free rate is 4% annually and the time period is 3 months or 0.25 years. The beta of the portfolio is 1.2.
The associated mid cap future has a contract price of $2,350, multiplier of $100, and beta of 1.29.
The solution completely ignores the Beta. My question is why do we ignore the beta information for both the future and portfolio.
Solution: Number of Futures = -75,000,000 * 1.04^(0.25)/235,000 = - 322