Three month S&P 500 index futures contracts currently trade at 1200. The contract size is 500 and the spot index value is 1176. View the situation from the perspective of a high technology equity portfolio manager who manages a $60 million portfolio and wishes to hedge against possible declines using S&P 500 index futures contracts. Assume further that the beta of his equity portfolio is 1.75.

A) How many contracts should the manager trade in order to reduce his risk exposure to that of a 0.5 beta portfolio?

B) What would be the dollar value of the 0.5 beta position (equity + futures) if both the S&P 500 and the portfolio declined by 20% by maturity date?

C) What would you recommend to this manager and why? Be specific regarding the nature of the position, and its likelihood of accomplishing the desired objective.