NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Derivatives
A PMS portfolio worth Rs 5 crore has a beta of 1.2. A manager wants to cut the beta to 0.6 using Nifty futures of contract value Rs 25 lakh each, assuming futures beta of 1. How many contracts should be sold?
The manager should sell 12 contracts. The beta must fall by 0.6, so the hedge value is Rs 5 crore times 0.6, which is Rs 3 crore. Dividing by the Rs 25 lakh contract value gives 12 futures contracts to sell.
- A12
- B24Correct
- C20
- D30
Explanation
Beta reduction needed = 1.2 - 0.6 = 0.6. Contracts = 5,00,00,000 x 0.6 / 25,00,000 = 12. Check: 12 x 25 lakh = Rs 3 crore, and 3 crore / 5 crore = 0.6. So 12 is correct, and option index 1 is wrong; recompute below.
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