You have been assigned to implement a three-month hedge for a stock mutual fund portfolio that primarily

Question:

You have been assigned to implement a three-month hedge for a stock mutual fund portfolio that primarily invests in medium-sized companies. The mutual fund has a beta of 1.15 measured relative to the S&P Midcap 400, and the net asset value of the fund is $175 million. Should you be long or short in the Midcap 400 futures contracts? Assuming the Midcap 400 Index is at 1,450 and its futures contract size is 500 times the index, determine the appropriate number of contracts to use in designing your cross-hedge strategy.

Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...