In early October, an insurance company portfolio manager has a stock portfolio

of $$800,000$ with a portfolio beta of $1\mathrm{.}25.$ The portfolio manager plans on selling

the stocks in the portfolio in December to be able to pay out funds to

policyholders for annuities and is worried about a fall in the stock market. In

April, the CME Group S&P $500$mini$=$ Futures contract index is $4136$ for a

December futures contract $($ $$50$ multiplier for this contract$).$

a$.$ 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?

Type of Position

Explain why

How many contracts should you get?

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