A fund manager has a portfolio worth $55 million with a beta of 0.90. The manager is concerned about a possible decline in the market over the next two months and plans to use three-month futures contracts on the S&P 500 to hedge the risk. The current level of the index is 1350, one contract is on 250 times the index and the current 3 month futures price is $1255.

Q1) Calculate the number of futures contracts (rounded up to the nearest integer) the fund manager needs to trade to eliminate all exposure to the market over the next two months. (Use for short position in derivate instrument.)

Q2) Assume that two months later the level of the index becomes 1,000 and the prices of one month futures price becomes $1,002. Assume the portfolio has lost 20%. Calculate the gain or loss on the entire position (portfolio and derivative instrument in total) in $ (not in percent terms). (Use for loss.)

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