the market for blue chips. She decides, therefore, to hedge her position with six$-$month futures contracts on the E$-$mini Dow Jones Industrial Average, which are currently trading at $11,558.$

a$.$ Why would she choose to hedge her portfolio with the DJIA rather than the S&P $500?$

b$.$ Given that Vanessa wants to cover the full $$3\mathrm{.}8$ million in her portfolio, describe how she would go about setting up this hedge.

c$.$ If each contract required a margin deposit of $$4,931,$ how much money would she need to set up this hedge?

the hedge?

e$.$ Will she now get her margin deposit back, or is that a "sunk cost"$-$ gone forever?

a$.$ Why would she choose to hedge her portfolio with the DJIA rather than the S&P $500?($Select the best answer below.$)$

B$.$ Since Vanessa's portfolio consists of large$-$cap stocks, the Dow Jones Industrial Average Index would track her stock portfolio better than the S&P $500,$ which would be an appropriate hedge for a portfolio of blue$-$chip stocks.

b$.$ Given that Vanessa wants to cover the full $$3\mathrm{.}8$ million in her portfolio, describe how she would go about setting up this hedge. $($Select the best answer below.$)$

$$3,800,000$ in her portfolio, she would short$-$sell $330$ contracts $($$$3,800,\frac{000}{\text{\$}}11,558).$

$$3,800,000$ in her portfolio, she would short$-$sell $33$ contracts $).$

$$3,800,000$ in her portfolio, she would short$-$sell $33$ contracts

$($$$3,800,\frac{000}{\text{\$}}115,580).$

c$.$ If each contract required a margin deposit of $4,931,$ to set up this hedge she would need $$,($Round to the nearest dollar.$)$

d$.$ The amount she will make $($or lose$)$ on the futures hedge is : $($Round to the nearest dollar. Enter as a positive number for a gain and a negative number for a loss.$)$

Her net profit $($or loss$)$ on the hedge is $$.($Round to the nearest dollar. Enter as a positive number for a gain and a negative number for a loss.$)$

e$.$ Will she now get her margin deposit back, or is that a "sunk cost"$$gone forever? $($Select the best answer below.$)$

A$.$ Vanessa will get her margin deposit back. Although the purchase of a futures contract does involve a margin deposit, it is a refundable security deposit, not a sunk cost $($like an option premium$).$

B$.$ Vanessa will not get her margin deposit back. The margin deposit is a sunk cost $($like an option premium, not a refundable security deposit.