1. Analysts have advised the manager of an FfSE 100 index-tracking fund that the associated index is about to fall heavily. It is believed that as much as 10% of its current level could be lost before the nearby futures contract reaches maturity.

H the portfolio has a current value of £1,000,000, a beta of0.95, the FfSE 100 index is at 5500, and the nearby futures contract is quoted at 5525 demonstrate how the portfolio can be hedged using futures contracts. State clearly any assumptions you make and how these assumptions may affect the outcome of the hedge.