A manager has a 70/30 stock and bond portfolio. To synthetically create a portfo

Question

A manager has a 70/30 stock and bond portfolio. To synthetically create a portfolio that is 50 percent stock and 50 percent bonds, the manager should:

go short the bond futures is enough.

go long the bond futures and short the stock index futures.

go long both bond futures and stock index futures.

short the bond futures and go long the stock index futures.

go short the bond futures is enough.

go long the bond futures and short the stock index futures.

go long both bond futures and stock index futures.

short the bond futures and go long the stock index futures.

Explanation / Answer

Manager has to reduce the position in stock which has to be done by shorting index futures and to increase position in bond, he has to go long in bond futures

Correct choice: B

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