Suppose that you would like to hedge a value of portfolio over the next 9 months

with a future contract with 10 months to maturity. The conditions of the portfolio are

given by the following:(20%)

Index level is 2,000;

Index future price is 2,050;

Value of portfolio is 1,640,000;

Risk-free rate is 6% per annum;

Dividend yield on index is 4% per annum;

Beta of portfolio is 2;

One future contract is for delivery of 200 times the index;

If the index turns out to be 1,800 after 9 months and the future price is 1,810.

Based on the information above, please answer the following questions.

(1) What position will you take on the future contract and why?

(2) If it is tailing, then how many contracts do you purchase for hedging?

(3) Please calculate the overall rate of return on this hedging.