(5%)

Suppose that a portfolio is worth

$50

million and the S&P 500 is at 1000 . Each option contract is for

$100

times the index. Suppose that the portfolio has a beta of 1.5 , the risk-free interest rate is

5%

per annum, and the dividend yield on both the portfolio and the index is

3%

per annum. What options (and how many contracts) should be purchased to provide protection against the value of the portfolio falling

$45

million in one year's time?

6. (5\%) Suppose that a portfolio is worth $50 million and the S\&P 500 is at 1000 . Each option contract is for $100 times the index. Suppose that the portfolio has a beta of 1.5 , the risk-free interest rate is 5% per annum, and the dividend yield on both the portfolio and the index is 3% per annum. What options (and how many contracts) should be purchased to provide protection against the value of the portfolio falling $45 million in one year's time