1. S&P 500 is now at 2,100. Ignore interest rate (assume everything is given in PV terms). Suppose you own a $20M portfolio with a beta of 0.9. S&P 500 is expected to drop by 3% (or by 63 points, 3% 2,100 = 63). Futures on S&P500 have a multiplier 250.

1. Should you long or short futures on S&P500 to hedge your portfolio?
2. If S&P500 drops by 63 points, what is the dollar change in the portfolio value?
3. If S&P500 drops by 63 points, what is the dollar change in the value of one futures contract (with a multiplier 250)? [Note the sign of the delta depends on whether the contract is longed or shorted. Be careful.]
4. What is the delta of your portfolio?
5. What is the delta of one futures contract?

6. How many futures contracts should you take a position in to hedge away the risk of S&P500 dropping?

7. Your answer to f would change if the S&P500 index were expected to drop by 5%. (True / False)