1) You want to protect the value of a $250,000,000 portfolio over next 6 months; the beta of your portfolio is 1.3. Currently the S&P futures contract with six months to expiration has a price of $3100.

Questions:

1) How many contracts you need to sell?

2) Calculate the gain on the future contracts if S&P 500 index price declines 10% to $2790 six months later.

3) Calculate the loss on the portfolio if S&P 500 index price declines 10% to $2790 six months later.

4) Explains how the hedge has worked.