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A portfolio manager in charge of a portfolio worth $25 million is concerned that the market might decline rapidly during the next six months and would like to use options on the S&P 100 to provide protection against the portfolio falling below$22 million.

The S&P 100 index is currently standing at 2500 and each contract is on 100 times the index.

a. If the portfolio has a beta of 1.0, how many put options should be purchased?

b. If the portfolio has a beta of 1.0, what should the strike prices of the put options be?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92743777

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