CMA Final · Strategic Financial Management · Forwards and Futures
A portfolio manager holds a Rs 5 crore equity portfolio with beta 1.2 and wants to reduce beta to 0.6 using Nifty futures. Nifty futures are at 25,000 with lot size 25 (contract value Rs 6,25,000). How many contracts should be sold, assuming the futures beta is 1?
None matches precisely; the computation gives 48 contracts.
- A8 contractsCorrect
- B16 contracts
- C4 contracts
- D12 contracts
Explanation
Contracts = (target beta - current beta) x portfolio value / contract value = (0.6-1.2) x 5,00,00,000 / 6,25,000 = -0.6 x 80 = -48... recheck: 5,00,00,000/6,25,000 = 80; 0.6 x 80 = 48. So 48 contracts sold. The option listed is therefore incorrect; correct count is 48.
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