A PM manages a $70 million portfolio that has a beta of 1.0 relative to the S&P 500. The S&P 500 futures are trading at 4,100 and the multiplier is 250. She would like to hedge exposure to market risk over the next few months. Suppose that at the maturity of the futures contract, the market index is trading at 4,090 and the portfolio has experienced a 1% decline in value. Evaluate the following statements.

I. The appropriate hedge for the portfolio is a long position in 68 contracts.

II. The net impact of the market decline on the appropriate hedge portfolio is a gain of $530,000.

a. Only statement one is correct b. Only statement two is correct c. Both statements are correct d. Neither statement is correct