a) You are currently long on a portfolio of stocks that has a beta of 1.60. Given recent uncertainties, you intend to reduce the portfolio beta to 1.20. Your portfolio currently worth RM2.8 million and FBM KLCI is at 800 points. Show how the objective can be achieved using SIF contracts. (4 marks) b) Given the following quotes: FBM KLCI spot = 747 points, risk-free rate = 4.5% annualised. FBM KLCI dividend yield = 1.75% annualised 1) If the 90-day KLCI futures is quoted at 762 points, show that arbitrage is possible. (3 marks) ii) Calculate the arbitrage profit if FBM KLCI is 10% higher by futures maturity