PLEASE PROVIDE FORMULAS!!! Thanks! A fund manager has a portfolio worth $80 million with a beta of 0.90. The manager is concerned about the performance of the market over the next two months and plans to use three-month futures contracts on a well-diversified index to hedge its risk. The current index level is 2,600, one contract is on 250 times the index, the risk-free rate is 2.50% per annum, and the dividend yield on the index is 2%. The current three-month futures price is 2,670.
Spot index value			2,600
Multiplier on the index (per contract)			250
Value of fund			$80,000,000
Beta of fund			0.90
Risk-free rate (per annum)			2.50%
Dividend yield (per annum)			2.00%
Three-month futures price			2,670
What position should the fund manager take to hedge exposure to the market over the next two months?
Position:
Contracts:
Calculate the effect of your strategy on the fund manager's returns if the level of the market in two months is 2,000, 2,200, 2,400, and 2,600. Assume that the one-month futures price is 0.25% higher than the index level at this time.
Percentage that the futures price is higher than the index level					0.25%
Value of index in two months			2,000.00	2,200.00	2,400.00	2,860.00
Futures price of index in two months
Gain (loss) on futures position ($)
Expected return on the index in two months (%)
Expected return on the index (incl. dividends) in two months (%)
Excess return on the index (incl. dividends) above risk-free rate (%)
Excess return on (unhedged) portfolio above risk-free rate (%)
Expected return on (unhedged) portfolio over two months (%)
Value of (unhedged) portfolio in two months ($)
Total value of position in two months ($)
Expected return on (hedged) portfolio over two months (%)