An investment management firm wishes to decrease the beta of one of its portfolios under management from 1.15 to 0.65 for a five-month period. The portfolio has a market value of $200,000,000. The investment firm plans to use a futures contract priced at $102,500 in order to adjust the portfolio beta. The futures contract has a beta of 1.02.

A) Calculate the number of futures contracts that should be bought or sold to achieve a decrease in the portfolio beta.The number of the contracts should be a whole number.

B) At the end of 5 months, the overall equity market is down by 3.5%. The stock porfolio under management is down by 4.025%. The futures contract is priced at $98,840.75. Calculate the value of the overall position and the effective (realized or ex post) beta of the portfolio.

		t=0	t=5 mo
	S=	$200,000	-4.025%
	Beta(stock)=	1.15
	Beta(tgt)=	0.65
	Beta(fut)=	1.02
	f=	$102,500	$98,840.75
	CHG(mkt)=	1%	-3.50%
A)	No of contract?
	Short or long?
B)	Value of position?
	Effective beta?