How many futures contracts are needed for this hedging

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Question: You are managing a $525 million stock fund and have decided to hedge against a possible market crash using S&P 500 index futures contract that is currently quoted at 1,256.50. The multiplier of the contract is $250.

1) Briefly explain whether you need to buy or sell the futures contracts to hedge your portfolio against downside risk and why.

2) Calculate how many futures contracts are needed for this hedging purpose.

3) (Bonus) Draw charts/diagrams to illustrate how your position in futures contracts protect your portfolio against downside risk.

Reference no: EM133332015

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