You are the manager of a stock portfolio. On October 1, your holdings consist of the eight stocks listed in the following table, which you intend to sell on December 31. You are concerned about a market decline over the next three months. The number of shares, their prices, and the betas are shown, as well as the prices on December 31.
|
Stock
|
Number of Shares
|
Beta
|
10/1 Price
|
12/31
Price
|
|
R. R. Donnelley
|
10,000
|
1.00
|
19.63
|
27.38
|
|
B. F. Goodrich
|
6,200
|
1.05
|
31.38
|
32.88
|
|
Raytheon
|
15,800
|
1.15
|
49.38
|
53.63
|
|
Maytag
|
8,900
|
0.90
|
55.38
|
77.88
|
|
Kroger
|
11,000
|
0.85
|
42.13
|
47.88
|
|
Comdisco
|
14,500
|
1.45
|
19.38
|
28.63
|
|
Cessna
|
9,900
|
1.20
|
29.75
|
30.13
|
|
Foxboro
|
4,500
|
0.95
|
24.75
|
26.00
|
On October 1, you decide to execute a hedge using a particular stock index futures contract, which has a $500 multiplier. The March contract price is 376.20. On December 31, the March contract price is 424.90. Determine the outcome of the hedge.