You are a project manager worried about the impact of an economic downturn on the value of your project. You determine that your projects beta is 0.75 (This value was found by regressing the projects expected returns on the S&P 500 Index returns). Please answer the following questions:

A.Will you buy or sell the futures contract to protect the downside risk?

B.Will you buy/sell one full contract or a fraction of a contract, assuming the latter is possible? What fraction will you buy or sell?

C.Suppose on maturity the index is down 5%. Show that the futures contract will completely protect the downside, if the above relationship holds. Ignore all costs.