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Calculate the number of futures contracts

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A portfolio manager controls $5 million in common stock. In anticipation of a stock market decline, the decision is made to hedge the portfolio using the S&P 500 futures contract. The portfolio's beta is 1.20, and the current value of the S&P 500 futures contract selected is 238.50.

a) Calculate the number of futures contracts that should be bought or sold.

b) Suppose that when the contracts are closed out, the portfolio has fallen in value to $4.2 million and that the S&P 500 index has fallen to 215.00. Calculate the gain or loss on the combined positions (stock portfolio and futures contracts).

c) Why does the net gain or loss not exactly equal zero?

Reference no: EM132466651

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