How many sif contracts must the fund manager sell

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A fund manager has a $5.05 million stock portfolio with a beta of 1.5. She wishes to hedge the price risk for 3 months using a stock index futures contract with 4 months to expiration. The stock index is currently 1,000 points and has a continuous dividend yield of 1% p.a. The risk-free rate is 4% p.a. (c.c.). The stock index futures price is 1,010 and the point value of the index is $250.

(a) How many SIF contracts must the fund manager sell?

(b) How will the fund manager fare if the index is 900 points (futures price 902 points) in 3-month's time?

Reference no: EM132978825

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