Tracy Mathers manages the $60 million equity portion of Gamma Corporation's pension assets. In late August 2016 Gamma announced that it was downsizing its workforce and would be offering early retirement to many of the older employees.The impact on the portfolio Tracy manages would be an anticipated $10 million withdrawal over the next 4 months.

The US stock market has been good for the past 5 years, but recently there have been signs of weakness. Tracy is concerned about the drop is asset prices before the $10 million is withdrawn from the portfolio. Tracy runs a fairly aggressive portfolio with a beta of 1.2, relative to the S&P500 Index. The following were the prevailing S&P500 futures prices:

Expiration Contract Value $250 * Index

SEP16 1088.50

DEC16 1100.00

MAR17 1110.50

a) How much of the portfolio should Tracy have hedged? Justify your answer.

b) Design a hedge based on your answer to question (a)