Imagine you are a provider of portfolio insurance. You are establishing a four-year program. The portfolio you manage is currently worth $100 million, and you promise to provide a minimum return of 0%. The equity portfolio has a standard deviation of 25% per year, and T-bills pay 5% per year. Assume for simplicity that the portfolio pays no dividends (or that all dividends are reinvested).

a-1. What percentage of the portfolio should be placed in bills? (Input the value as a positive value. Round your answer to 2 decimal places.)

Portfolio in bills %

a-2. What percentage of the portfolio should be placed in equity? (Input the value as a positive value. Round your answer to 2 decimal places.)

Portfolio in equity %

b-1. Calculate the put delta and the amount held in bills if the stock portfolio falls by 3% on the first day or trading, before the hedge is in place? (Input the value as a positive value. Do not round intermediate calculations. Round your answers to 2 decimal places.)

Put delta		%
Amount held in bills	$	million

b-2. What action should the manager take? (Enter your answer in millions rounded to 2 decimal places.)

The manager must sell $ million of equity and use the proceeds to buy bills