The current level of the S&P 500 index is 2031. An investor holds 8,150 shares o

Question

The current level of the S&P 500 index is 2031. An investor holds 8,150 shares of SLY (SPDR S&P 600 small cap ETF, Beta=1.23, current price=$104.94, current portfolio value=$855,261). E-mini S&P 500 futures contracts are available with a current contract price of 2,028, expiration of December, and multiplier of $50. Assume the investor sells 7 futures contracts. If the S&P 500 falls to 1,827.9 in December (-10% return) and SLY falls to $92.03 (-12.3% return, portfolio value=$750,044.50), what is the futures enhanced percent return to the portfolio?

Explanation / Answer

Enhanced % return to the portfolio

total value of the portfolio =750044.50+2028*7

=750044.50+14196

=764240.5

% return =14196/764240.5*100

=1.86%

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