Suppose an FI Holds a $2 000 000 Trading Portfolio

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%.How much does the FI stand to lose in earnings if adverse stock market returns materialise tomorrow?

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