) FOR CLIENT E TO SHIFT, FOR THREE MONTHS, THE PORTFOLIO ALLOCATION TO 50% LARGE CAP GROWTH STOCKS AND 50% U

5.) For Client E to shift, for three months, the portfolio allocation to 50% large cap growth

stocks and 50% U.S. Treasury, and presuming no other changes in the characteristics of the

portfolio, Allison will most likely:

A.

sell 92 stock index contracts and buy 136 Treasury future bond contracts.

B.

sell 370 stock index contracts and buy 68 Treasury future bond contracts.

C.

sell 92 stock index contracts and buy 68 Treasury future bond contracts.

Answer = C

Shifting the asset allocation from 66.66% stock/33.33% bonds to 50% stock/50% bonds

requires that Allison sell stock index futures and buy bond index futures for a notional

amount of $10,000,000.

That is, sell 92.5 or 92 futures contracts.

68 bond futures (+ futures means to buy)

“Risk Management Applications of Forward and Futures Strategies,” by Don M. Chance