It is July 17 and a portfolio manager at NPR is concerned over the increased volatility of the market and plans to hedge his $430 million growth portfolio over the next three months. The beta of his portfolio is 1.65. The December futures contract for the S&P 500 index is currently quoted at 874.5. The value of each futures contract is 250 times the value of the index.

• What actions you would take to protect the value of the portfolio over the next three months?
• What is the hedge ratio?
• Show what happens if the market drops by 8 % over the next three months.
• Show what happens if the market advances by 5 % over the next three months.