What happens if rates go down? For example, how mu Ch wall T, J, make if the yield on T - note futures goes down by just 3/4 of 1%, in which case these contracts would be trading at 105-8? What risks do you see in the recommended short-sale transaction? What is your assessment of T, J, 's new interest in financial futures? How do you think it compares to his established commodities investment program? Jim Pernelli and his wife, Polly, live in Augusta, Georgia. Like many young couples, the Pernellis are a 2 income family. Jim and Polly are both college graduates and hold high-paying jobs. Jim has been an avid investor in the stock market for a number of years and over time has built up that is currently worth nearly $375,000. The Pernells' portfolio is well diversified, although it is heavily weighted in high-quality, mid-cap growth stocks. The pernellis reinvest all dividends and regularly add investment capital to their portfolio. Up to now, they have avoided short selling and do only a modest amount of margin trading. Their portfolio has undergone a substantial amount of capital appreciation in the last 18 months or so, and Jim is eager to protect the profit they have earned. And that's the problem: Jim feels the market has pretty mu Ch run its course and is about to enter a period of decline. He has studied the market and economic news carefully and does not believe retreat will cover an especially long period of time. He feels fairly certain, however, that most, if not all, of the stocks in his portfolio will be adversely affected by these market conditions-although some will drop more in price than others. Jim has been following stock-index futures for some time and believes he knows the ins and outs of these securities pretty well. After careful deliberation, Jim and Polly decide to use stockindex futures-in particular, S&P MidCap 400 futures contract-as a way to protect (hedge) the their portfolio of common stocks. Explain why the Pernellis would want to use stock-index futures to hedge their stock portfolia and how they would go about setting up such a hedge. Be specific. What alternatives do Jim and Polly have to protect the capital value of their portfolio? What are the benefits and risks of using stock-index futures to hedge