a-1. If he holds a $12.4 million portfolio of Waterworks stock and wishes to hedge market exposure for the next month using one-month maturity S&P 500 futures contracts, how many contracts should he enter? The S&P 500 currently is at 2,000 and the contract multiplier is $50.

a-2. Should he buy or sell contracts?

multiple choice

• Buy

• Sell Correct

b. Assuming that monthly returns are approximately normally distributed, what is the probability that this market-neutral strategy will lose money over the next month? Assume the risk-free rate is 0.9% per month. (Do not round intermediate calculations. Round your answer to 2 decimal places.)