Q4) (10 Points) An equity investor with a $200M portfolio has allocated 50% of their portfolio to the S&P 500 which has a beta of 1.0 and allocated the balance to Asian equities which has a beta of 1.5 as measured (regressed) against the S&P 500. The only hedging instrument available are futures on the S&P 500 index. The current level of the S&P 500 Index is 2,000 and the rate free rate is 5%. Over the next year the investor wants to target a 30%/70% S&P / Asian mix and achieve a 2.0 beta for the S&P 500 Index and 4.0 for Asian equities. Use discrete compounding. a) Compute the futures trades needed to achieve this? b) Assume that in 1 year the return on the S&P is 15% and the return on Asian equities is 20%. Show the returns for each asset class and for the portfolio in total. Are these in line with what you expected? not show the attribution as to why it is different. c) In practice which equity hedge do you think will have a better match? Briefly outline some of the complications or potential hedging inefficiencies. Q4) (10 Points) An equity investor with a $200M portfolio has allocated 50% of their portfolio to the S&P 500 which has a beta of 1.0 and allocated the balance to Asian equities which has a beta of 1.5 as measured (regressed) against the S&P 500. The only hedging instrument available are futures on the S&P 500 index. The current level of the S&P 500 Index is 2,000 and the rate free rate is 5%. Over the next year the investor wants to target a 30%/70% S&P / Asian mix and achieve a 2.0 beta for the S&P 500 Index and 4.0 for Asian equities. Use discrete compounding. a) Compute the futures trades needed to achieve this? b) Assume that in 1 year the return on the S&P is 15% and the return on Asian equities is 20%. Show the returns for each asset class and for the portfolio in total. Are these in line with what you expected? not show the attribution as to why it is different. c) In practice which equity hedge do you think will have a better match? Briefly outline some of the complications or potential hedging inefficiencies