You manage a portfolio worth $12.5 million, currently all invested in equities, and believe that the market is on the verge of a big but short-lived downturn. You would move your portfolio temporarily into T-bills, but you do not want to incur the transaction costs of liquidating and reestablishing your equity position. Instead, you decide to temporarily hedge your equity holdings with E-mini S&P 500 index futures contracts.

a.Should you be long or short the contracts?

• Long
• Short

b. If your equity holdings are invested in a market-index fund, into how many contracts should you enter? The S&P 500 index is now at 1,180 and the contract multiplier is $250.(Round your answer to 1 decimal place.)

c.How does your answer to(b)change if the beta of your portfolio is 0.6?(Round your answer to 1 decimal place.)