Suppose you buy the SP$500$ index futures at price of $4200,$ the multiplier A fund manager has a portfolio worth $$50$ million with a beta of $0\mathrm{.}87.$ The

manager is concerned about the performance of the market over the next

two months and plans to use index futures contracts on a well$-$diversified

index to hedge its risk. The current level of the index is $1250,$ one contract

is on $250$ times the index, the risk$-$free rate is $6\%$ per annum, and the

dividend yield on the index is $3\%$ per annum. The current $2$ month futures

price is $1259.$ In two months, assume the index price is $1000,$ and the

index futures prices is $1002\mathrm{.}5.$

Suppose you sold short $138$ contracts to hedge.

What is the gain or loss on the index futures?

gain of $8,849,250$

gain of $8,949,250$

loss of $8,849,250$

loss of $8,949,250$ What is the return on the manager's portfolio after your apply the CAPM?

is $$250,$ do you make money or lose money if the price of the index future

goes to $4300?$

Yes, you make $$100.$

No$,$ you lose $$100.$

Yes, you make $$25,000.$

No$,$ you lose $$25,000.$