Question 5. On July 16, 2014 a stock portfolio market value is $100,000,000. The portfolio's manager believes that the market is on its way down in the next 6 months and wishes to use the MAR 2015 S&P500 index futures to hedge the portfolio value. Currently, the portfolio's beta with the S&P500 index is beta = 1.2, the index value is 1,000 and its dollar multiplier is $250.

5.1 Use a timetable to show how to open the hedge on JUL 16, 2014.

DateCash MarketFutures Market

5.2 On DEC 14, 2014 the S&P500 index is at 850. The portfolio lost value by the same proportion as the S&P500 index multiplied by its beta. Use the same table you opened in 3.1 to show the result of the hedge and calculate its effect on the portfolio's value.