Gains or losses on the futures contracts

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A fund manager has a portfolio worth $120 million. The beta of the portfolio is 2.0. He plans to use futures contracts on S&P 500 to hedge risk over the next 3 months. The current index level is 1,005, the risk free rate is 4% per annum compounded quarterly, and the dividend yield is 1% per annum (or 0.25% per quarter). The multiplier of the futures contract is $250 times the index and the current 4-month futures price 1,015. The index after 3 months is 908 and the 1-month futures price is 910. How many futures contracts should the fund manager have trade in and what is the value of his portfolio including the gains or losses on the futures contracts?

Reference no: EM132414207

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