On July 1, an investor holds 10,000 shares of a certain stock. The market price is $38.7 per share. The investor is interested in hedging against movements in the market over the next month and decides to use the September Mini S&P 500 futures contract. The index is currently 3055 and one contract is for delivery of $50 times the index. The beta of the stock is 1.4.

1) a. In order to hedge the risk of the portfolio, in how many contracts should the investor take a short position? (Keep two decimal places in your answer. Do not round the numbers to the closest integer. Do not use negative numbers.)

1). b. The trader should take a short/long position in the contracts.

2) a. Suppose the investor changes her mind and decides to increase beta of her portfolio to 2.3 using index futures contracts. How may contracts should the investor take a position in? (Keep two decimal places in your answer. Do not round the numbers to the closest integer. Do not use negative numbers).

2) b. The investor should take a short/long position in the contracts.