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A manager of $30 million in mid-cap equities would like to move half of the position to an exposure resembling small-cap equities. The beta of the mid-cap position is 1.0, and the average beta of small-cap stocks is 1.6. The betas of the corresponding mid and small-cap futures contracts are 1.05 and 1.5 respectively. The mid and small-cap futures prices are $260,000 and $222,222 respectively. What is the appropriate strategy? A. Short 17 mid-cap futures and go long 17 small-cap futures. B. Short 55 mid-cap futures and go long 72 small-cap futures. C. Short 17 small-cap futures and go long 17 mid-cap futures. |