Find the optimal stock index futures hedge ratio if the portfolio is worth $1,200,000, the beta is 1.15 and the S&P 500 futures price is 450.70 with a multiplier of 250.

a.

5325.05

b.

6123.80

c.

10.65

d.

12.25

Though a cross hedge has somewhat higher risk than an ordinary hedge, it will reduce risk if which of the following occurs?

a.

Futures prices are more volatile than spot prices

b.

The spot and futures contracts are correctly priced at the onset

c.

Futures prices are less volatile than spot prices

d.

Spot and futures prices are positively correlated