Advise Mr. S a speculator the net position to be taken on the Index Future that will give a complete hedge against the following transactions: (i)…

CA Final · Advanced Financial Management · MTP · May 2026
Advise Mr. S a speculator the net position to be taken on the Index Future that will give a complete hedge against the following transactions: (i) He has a long position in the share on the cash market of 50 lakhs on the R Limited. The beta of the R Limited is 1.25 and it is expected that the prices its shares is going to rise. (ii) He has a short position on the cash market of 25 lakhs on the W Limited. The beta of the W Limited is 0.90 and it is expected that the prices its shares is going to depreciate.

Suggested Answer and Working Notes:

Sl. No. Company Name Trend Amount (₹) Beta (₹) Position (1) (2) (3) (4) (5) [(4) x (5)] (7) (i) R Ltd. Rise 50 lakh 1.25 62,50,000 Short (ii) W Ltd. Depreciate 25 lakh 0.90 22,50,000 Long Net Position 40,00,000 Short

Topics: Derivatives Analysis & Valuation

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