a. The standard deviation of monthly changes in the spot price of live cattle is (in cents per pound) 1.2. The standard deviation of monthly changes in the futures price of live cattle for the closest contract is 1.4. The correlation between the futures price changes and the spot price changes is 0.7. It is now October 15. A beef producer is committed to purchasing 200,000 pounds of live cattle on November 15 . The producer wants to use the December live-cattle futures contracts to hedge its risk. Each contract is for the delivery of 40,000 pounds of cattle. What strategy should the beef producer follow? (6 marks) b. A portfolio manager has maintained an actively managed portfolio with a beta of 0.2. During the last year the risk-free rate was 5% and equities performed very badly with a return of 30%. The portfolio manager produced a return of 10% and claims that in the circumstances it was good. Discuss this claim