You have been assigned to implement a three-month hedge for a stock mutual fund portfolio that primarily invests in medium-sized companies. The mutual fund has a beta of 1.25 measured relative to the S&P Midcap 400, and the net asset value of the fund is $165 million. a. Should you be long or short in the Midcap 400 futures contracts?

Long:

Short:

b. Assuming the Midcap 400 Index is at 640 and its futures contract size is 500 times the index, determine the appropriate number of contracts to use in designing your cross-hedge strategy. (Do not round intermediate calculations. Round your answer to the nearest whole number.)

Contracts: