Suppose an FI Holds a $2 000 000 Trading Portfolio $\times$

Multiple Choice

Suppose an FI holds a $2 000 000 trading portfolio with an average beta of 1.0. Over the last year, the daily return on the stock market index was 3 per cent. How much does the FI stand to lose in earnings if adverse stock market returns materialise tomorrow?

A) $2 000 000 $\times$ 0.03 = $60 000
B) $2 000 000 $\times$ 1.0 $\times$ 0.03 = $60 000
C) $2 000 000 $\times$ 1.65 $\times$ 0.03 = $99 000
D) $2 000 000 $\times$ 2.33 $\times$ 0.03 = $139 800