(a)You manage a $100 million stock portfolio with a beta of 0.80. Given a contract size of $100,000 for a stock index futures contract, how many contracts are needed to hedge your portfolio?

Suppose a futures contract exists on IBM stock, which is currently selling at $90 per share. The contract matures in three months, the risk-free rate is 6 percent annually, and the current dividend yield on the stock is 4 percent. What does the parity relationship imply the futures price should be?

Explain the following terminology with regard to futures trading;

(i)Marking-to-market

(ii)Reverse trade

(iii)Carrying charge market

(iv)Spot-futures parity