The S&P 500 Index is currently at 1,800. You manage a $9 million indexed equity portfolio. The

Question:

The S&P 500 Index is currently at 1,800. You manage a $9 million indexed equity portfolio. The S&P 500 futures contract has a multiplier of $250.
a. If you are temporarily bearish on the stock market, how many contracts should you sell to fully eliminate your exposure over the next six months?
b. If T-bills pay 2% per six months and the semiannual yield is 1%, what is the parity value of the futures price?
c. Show that if the contract is fairly priced, the total risk-free proceeds on the hedged strategy in part (a) provide a return equal to the T-bill rate?
Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...