Criteria

Hedge the market risk of the investment due to downturn within the market. The investment has reached its target price. Use the S&P 500 E-mini futures to hedge the systematic risk out of the investment.

Data Set

EPS = $3 ; ROE = 25% ; plowback = 90% ; R(f) = 2% ; R(m) = 9% ; MRP = 7% ( R(m) - R(f) ) ; Intrinsic Value = $73.50

Today's Closing Price = $60 ; Current Dividend (D0) = 0.30 ; Rate of Return =23% ; Trailing P/E Multiples = 24.50; Forward P/E Multiples = 20

PVGO = 57.52 ; Investment = $700,000 ; Expected Return = 23%

a. Using a futures price of 2800; and calculate the number of futures, and if you should buy or sell to hedge?