How effective the hedge performed

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-An investment Advisor has a portfolio worth $60 Million with a beta of 0.75. The manager is concerned about the performance of the market over the next 2 months and plans to use 3-month futures contracts on the S&P 500 to hedge the risk. The current index level is 1,350, one contract is 250 times the index, the risk-free rate is 6% per annum and the dividend yield on the index is 3% per annum. Assume that the current 3-Month futures price is 1,300;

-The strategy should the Advisor use to hedge the exposure to market over the next 2 months? Show all work

-Assuming the index in 2 months was 1,500 and the futures price was 1,504, show how effective the hedge performed? Show ALL work.

Reference no: EM133113449

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