1. In early October an environmentally conscious insurance company portfolio manager has a stock portfolio of $500,000 with a portfolio beta of 00. The insurance companys investments are all invested in a diversified of environmental, social, corporate governance (ESG) stocks of well-run companies meeting sustainability criteria, while maintaining similar overall industry group weights as the S&P 500.https://www.spglobal.com/spdji/en/indices/equity/sp-500-esg-index/#overview

The portfolio manager plans on selling the portfolio in December to be able to pay out funds to policyholders for annuities and is worried about a fall in S&P 500 ESG index. In Octoberthe CME Group E-mini S&P 500 ESG Futures contract index price is 282.52for a December futures contract ($500 multiplierfor this contract).

1. What type of futures position should be taken to hedge against the stock market going down and how many future contracts are needed for this hedge?

[Hint: # contracts = [Portfolio x Beta] /[ Futures Index Price x Multiplier]

Type of Position_______________

Explain why __________________________

How many contracts should you get?

Number of Contracts_______________

2. Suppose in December the stock market (S&P500 500 ESG index) falls by 5% and the e-mini S&P500 ESG futures contract index falls by 5% as well, what is the portfolio managers opportunity loss (gain) on his portfolio, and his futures gain (loss) and the net hedging result?

Spot Gain or Loss ________ Futures Gain or Loss _______

Net Hedging Result ___________