A company has a $10 million stock portfolio with a beta of 1.25 when measured against the S&P 500 stock index. The company would like to hedge the stock portfolio completely against decreases in stock prices over the next 3 months.

The index level is 3,896 and the dividend yield on the index is 2% annually compounded.

The futures price for a contract on the index with a delivery date in 4 months is 3,996. Futures contracts on $250 times the index can be traded.

The risk free rate is 3% annually compounded.

At the end of 3 months, the index level is 3,596.

Which of the following is correct?

1. The value of the completely hedged stock portfolio at the end of 3 months would be (close to) $10.323 million

2. The company should sell 11 futures contracts on the S&P 500 stock index to completely hedge the stock portfolio.

3. The fair price of the futures contract in 3 months should be 3,698.94.

4. The loss on the unhedged stock portfolio at the end of 3 months would be greater than 10%.