A US investor has a $50 Million dollar Stock Portfolio. The investor is worried about a declining market. The following information is provided:

** Beta of the stock portfolio is 1.25

** S&P 500 Index at the beginning of the year is 1,500. The investor is worried the S&P 500 index may decline to 1,200 by the end of the year.

** Value of 1 S&P 500 contract is $250.

1. Describe (using only words) how the US investor can hedge against a decline in their stock portfolio if the market decreases as expected.

2. Calculate the expected percentage decrease in the market anticipated by the US investor.

3. Calculate the dollar amount at risk (loss in portfolio value) if the market decreases as expected.

4. Calculate the hedge ratio. (Hedge Ratio = LL/GS)

5. If the market declines exactly by the amount expected and the investor executed the hedge at the beginning of the year, what is the dollar amount of the loss in the portfolio? Explain your answer.