Mohan buys 10,000 shares of X Ltd. @25 per share whose beta value is 1.5 and sells 5,000 shares of A Ltd. @40 per share having a beta value of 2. He…

(i) Let N be the value of Nifty Future Contract then: (10000×25×1.50 - 5000×40×2) / N = 25 N = 1000 Since Mohan has bought Nifty Futures the above value shall be considered as positive i.e. value of per one Nifty Future is 1000. Alternatively, it can also be computed as follows: (5000×40×2 – 10000×25×1.50) / N = 25 N = 1000 Accordingly, the value of Nifty Future is 1000. (ii) Initial Cash Outlay = 10000 x 25 + 1000 x 25 - 5000 x 40 = 2,50,000 +25,000 -2,00,000 = 75,000 (iii) Cash inflow at the closeout 75,000 -16,625 = 58,375 (iv) Percentage Gain/ loss to Shares of A Ltd. at the time of closure Let the amount realised from the sale of share of A Ltd. is A. Accordingly, next day at the time of closing out the position will be as follows: 10000 x 25 (1 – 0.04) + 25 x 1000 x (1 – 0.025) - A = 58,375 A = 2,06,000 Thus, percentage of loss to shares of A Ltd. = (2,06,000-2,00,000) / 2,00,000 = 0.03 i.e. 3% Alternative presentation- Percentage Gain / Loss to shares of A Ltd. at the time of closure: 16,625 Loss suffered by Mohan when he closes out his position at the closing price of the next day Less: a. Loss suffered in purchase of shares of X Ltd. (10,000 x 25 x 0.04) 10,000 b. Loss suffered in Nifty Futures (1,000 x 25 x 0.025) 625 10,625 Loss suffered in sale of shares of A Ltd. 6,000 Thus, percentage of loss to shares of A Ltd.= (6,000/2,00,000) x 100 = 0.03 i.e. 3%.