On 1 April 2015, Sunidhi was holding a portfolio of 10 securities whose value was - 9,94,450, the weighted average of beta of 9 securities of the…

CA Final · Advanced Financial Management · RTP · January 2026
On 1 April 2015, Sunidhi was holding a portfolio of 10 securities whose value was - 9,94,450, the weighted average of beta of 9 securities of the portfolio was 1.10. Since she was expecting a fall in the prices of the shares in near future to hedge her portfolio, she sold 5 contract of NIFTY Futures (Multiplier of 25) expiring in May 2015, which was trading at 8767.07 on 1 April. Required: (1) Calculate the beta of the 10th security. (2) Reconcile the reasons in spite of 2% fall in the market as per Sunidhi's apprehension if she would have earned some profit on her cash position.

Suggested Answer and Working Notes:

(1) To compute the beta of 10th security first we shall compute overall weighted beta as follows: Let weighted β of the Portfolio is w, then, 5 = (994450 / (8767.07 × 25)) × W w = 1.102 approximately Let beta of 10th security is β then, 1.102 = 0.90 x 1.10 + 0.10 x β β = 1.12 (2) The main reason for the profit in cash position might be due to reason that contrary to her expectation fall in the value of cash position there may be increase in value of cash position or decrease in the stock price may be lesser than 2%.

Topics: Derivatives Analysis & Valuation

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