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A company has a $20 million portfolio with a beta of 1.2. It would like to use futures contracts on a well-diversified stock index to
A company has a $20 million portfolio with a beta of 1.2. It would like to use futures contracts on a well-diversified stock index 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? What should the company do if it wants to reduce the beta of the portfolio to 0.6?
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