Suppose you manage a $2 million portfolio. Assume that the expected return of your portfolio is 18% per year, per year, the risk-free rate is 1% per year, and S0 = 3,200. You are worried that the market might fall after one year. How many one-year S&P E-Mini futures contracts do you need to hedge your portfolio? To hedge your risk exposure, should you hold a long position or a short position in the futures contracts? Note that the S&P E-Mini contract multiplier is $50. Recall the CAPM equation is: Choose the closest number.

Question 16 options:

a) Short 13 contracts

b) Short 22 contracts

c) Long 13 contracts

d) Long 22 contracts

e) None of the above