Not long ago, Vanessa Woods sold her company for several million dollars (after taxes). She took some of that money and put it into the stock market. Today, Vanessa’s portfolio of blue-chip stocks is worth $3.8 million. Vanessa wants to keep her portfolio intact, but she’s concerned about a developing weakness in the market for blue chips. She decides, therefore, to hedge her position with six-month futures contracts on the Dow Jones Industrial Average (DJIA), which are currently trading at 11,960.,,Assume that over the next six months, stock prices do fall, and the value of Vanessa’s portfolio drops to $3.3 million. If DJIA futures contracts are trading at 10,400, how much will she make (or lose) on the futures hedge? Is it enough to offset the loss in her portfolio? That is, what is her net profitor loss on the hedge?
Regent Papers is a library of common essays on high school, college, undergraduate and postgraduate topics. We have collected top papers from various institution, students and professors. The papers are based on common essay topics in all subjects.