A portfolio manager has a $50M portfolio with =0.90, and she wants to increase her beta to 1.20 for the next three months. She decides to use June S&P futures, F0 = 4400, and the payoff is $5xIndex.

a. What is the hedge position? Explain why you chose long or short.

b. She closes the position on May 1, when FT = 4500. What is her margin gain or loss?

c. Did this g/l do a good job giving her the same effect as if her portfolio had a beta of 1.2? Use CAPM to estimate how her portfolio did perform with =0.90, and would have performed with =1.20. Assume 0.01 for the annual risk free rate, and ignore portfolio dividends.