(f) Suppose you are assisting the fund manager of Impressions Capital, a UK Hedge Fund, with a combined portfolio of 100,000,000 under management. Presently the funds' portfolio manager is concerned about events in Eastern Europe and fears it is likely to escalate, which may result in a further decline of the market and so plans to hedge its $50,000,000 growth portfolio of US stocks over the next few months. The beta of the portfolio is 1.15 and you are asked to hedge its value using S&P 500 Index futures. Assume that it is March 11 and S&P 500 spot index is at 409.58, while the September contract is trading at 412.55. Note that the multiplier for the contract is $500. (a) Using the information above, how many futures contracts must you trade to fully hedge the value of the portfolio? [5 marks] (b) Show the value of the funds' portfolio position in stock and futures after you create the hedge in March. [5 marks] (c) Assume it is September 23, the futures expiration date, and the index has risen to 422.50 whereupon you decide to close out your hedge. Your funds stock portfolio is currently worth $51,813,837. Calculate the net gain or loss in the funds' total position. [10 marks] (f) Suppose you are assisting the fund manager of Impressions Capital, a UK Hedge Fund, with a combined portfolio of 100,000,000 under management. Presently the funds' portfolio manager is concerned about events in Eastern Europe and fears it is likely to escalate, which may result in a further decline of the market and so plans to hedge its $50,000,000 growth portfolio of US stocks over the next few months. The beta of the portfolio is 1.15 and you are asked to hedge its value using S&P 500 Index futures. Assume that it is March 11 and S&P 500 spot index is at 409.58, while the September contract is trading at 412.55. Note that the multiplier for the contract is $500. (a) Using the information above, how many futures contracts must you trade to fully hedge the value of the portfolio? [5 marks] (b) Show the value of the funds' portfolio position in stock and futures after you create the hedge in March. [5 marks] (c) Assume it is September 23, the futures expiration date, and the index has risen to 422.50 whereupon you decide to close out your hedge. Your funds stock portfolio is currently worth $51,813,837. Calculate the net gain or loss in the funds' total position. [10 marks]