A company has a $20 million portfolio with a beta of 1.2. It would like to use futures contracts on the S&P 500 to hedge its risk. The index futures price is currently 1080, and each contract is for delivery of $250 times the index. What is the hedge that minimizes risk and what should the company do if it wants to reduce the beta of the portfolio to 0.6?

Select one alternative

To hedge the risk, 74 contracts need to be shorted and; to reduce the beta to 0.6, a long position in 37 contracts is required.

To hedge the risk, 74 contracts need to be shorted and; to reduce the beta to 0.6, a short position in 37 contracts is required.

To hedge the risk, 89 contracts need to be shorted and; to reduce the beta to 0.6, a long position in 44 contracts is required.

To hedge the risk, 89 contracts need to be shorted and; to reduce the beta to 0.6, a short position in 44 contracts is required.