A fund manager has a portfolio worth $10 million with a beta of 1.25. The manager is concerned about the performance of the stock market over the next 3 months and plans to use 6-month futures contracts on a well-diversified index to hedge its risk. The current level of the index is 3,820, one futures contract is on 250 times the index, the risk free rate is 4% per annum, and the dividend yield on the index is 3% per annum, with both rates being quarterly compounded. The current 6-month futures price is 3,735. Consider the following statements. I. The position that the fund manager should take to reduce the beta of the portfolio to 0.75 is to sell (close to) 5.36 futures contracts on the index. II. If the fund manager did not hedge the stock portfolio, and at the end of 3 months, the index level is 3,500, the return on the portfolio over the 3 months would be closest to -9.78%. III. If the fund manager hedged all exposure to the stock market, and at the end of 3 months, the index level is 3,500, and the futures price is 3,422, the fund manager's returns over the 3 months would be closest to 0.69%. Which of the following is correct? a. Statement I is correct, Statement II and III are incorrect. O b. Statement III is correct, Statement I and II are incorrect. O c. Statement Il is correct, Statement I and III are incorrect. O d. Statement I, II and III are incorrect. O e. Statement I, II and III are correct