You are a provider of portfolio insurance and are establishing a 4-year program. The portfolio you manage is worth $124 million, and you hope to provide a minimum return of 0%. The equity portfolio has a standard deviation of 20% per year, and T-bills pay 4% per year. Assume that the portfolio pays no dividends.

a-1. How much should be placed in T-bills?

a-2. How much should be invested in the equity portfolio?

b-1. What is the new delta of the portfolio if the portfolio value drops by 2 percent on the first day of trading?

b-2. Complete the following:

Assuming the portfolio does fall by 2%, the manager should (Choose - buy or sell) $ _______ million in stock.