1. A fund manager has a portfolio worth $50 million with a beta of 1.5. He is concerned about the performance of the market over the next 3 months and plans to use 3-month S&P 500 futures to hedge his risk. The current 3-month futures price is 1250, and one contract is on $250 times the index. What position should the fund manager take to eliminate all exposure to the market?

A. sell 240 contracts

B. sell 167 contracts

C. sell 160 contracts

D. buy 120 contracts

2.A firm expects to borrow $50 million for 3 months in September at the SOFR and plans to use 90-day ED futures to hedge its interest rate risk. What position in ED futures does the firm need to take?

A. Buy 50 contracts.

B. Sell 50 contracts.

C. Buy 5 contracts.

D. Sell 5 contracts.

3.Which of the following statements is FALSE?

A. The duration of a 20-year zero-coupon bond is equal to 20.

B. The convexity of a 20-year zero coupon bond is equal to 0.

C. A company cannot fully eliminate its interest rate risk by using a duration-based hedging strategy.

D. None of the above.