Page 29 - Study notes - Index Futures Contract

[bhar]

Hi

On Page 29, Index futures contract - example to reduce the beta from 1.5 to 1.2, the answer should be 9.67 contracts and not 97 contracts. Could you please clarify. The problem details are - Current Beta - 1.5
Target Beta - 1.2
Present Portoflio Value = 10m
Index contract price , 1 contract = 250
Current Index value = 1240
How many contracts are required to achieve the target beta. Is there any other multiplier that I am missing.

Also on Page 24 - the formula for Beta -

covariance(spot,fut)/ variance(fut) = Beta (spot,fut). The std dev is raised to power f and 2 is represented below. It should be opposite.

Thanks
Bhar

 

[ABFRM]

with regards , to the Page 29 problem ,yes it should be 9.67 contracts. You are not missing any multiplier.

On page 24, yes that is the error because of typing. In these cases formula has to be written in equations so the mistake can happen in between.

 

[David Harper CFA FRM]

Thank you Abhishek!
Bhar - yes those are both typos. Apologies, we will correct. Thanks,

 

[bhar]

Thanks David. Very helpful.