11. Luxor Bank plc holds a $100m equity portfolio with a beta of 1.3 relative to the LINQ500 stock index. The LINQ 500 is currently trading at 6,000 points and offers a continuously compounded dividend yield of 3%. The LINQ500 futures contract has a contract multiple of $50 per full index point and matures in 6 months. The current risk-free rate of interest is 4% a) Calculate the futures position required to hedge the portfolio using a beta hedge. (30 marks) b) Three months later the LINQ500 has fallen to 5,400. Calculate the new futures price and the gain or loss on the futures and spot positions. (40 marks) c) Discuss any limitations of this hedging strategy. (30 marks) 11. Luxor Bank plc holds a $100m equity portfolio with a beta of 1.3 relative to the LINQ500 stock index. The LINQ 500 is currently trading at 6,000 points and offers a continuously compounded dividend yield of 3%. The LINQ500 futures contract has a contract multiple of $50 per full index point and matures in 6 months. The current risk-free rate of interest is 4% a) Calculate the futures position required to hedge the portfolio using a beta hedge. (30 marks) b) Three months later the LINQ500 has fallen to 5,400. Calculate the new futures price and the gain or loss on the futures and spot positions. (40 marks) c) Discuss any limitations of this hedging strategy. (30 marks)