1. You are managing a portfolio of $2,412,850, with a beta of 0.7 For the long-term you are bullish, but you think the market may fall over the next month. The S&P 500 index is currently at a level of 3,000 but you anticipate it to drop to 2,700 over the upcoming month.

   1. If the anticipated drop materializes, what is the expected return (loss) on your portfolio? (What

      is the anticipated drop in the S&P in percentage points?)

   2. What is the dollar value of your expected loss?

   3. If the anticipated drop materializes, by how much does the value of a futures position on the

      S&P change? i.e. what is the gain/loss from the futures position? (The futures contract calls

      for delivery of $250 times the value of the index)

   4. Given your answers to parts (b) and (c), how many futures contracts are needed to hedge the

      market risk in your portfolio? Will the hedge consist of a long or a short position?

   5. (*) How would your answer to part (d) change if you wanted to hedge not the entirety of the

      market risk, but rather only reduce it by half? (i.e. maintain a beta of 0.35 rather than 0)