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Outline the hedge strategy

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You are currently holding a portfolio of stocks worth $1,750,000. You wish to hedge your portfolio and have the following information:

Portfolio beta = 0.80

Spot index value = 700 points

Risk free rate = 5% per year

3 month SIF contract = 708.6 points

Expected dividend yield = 0%

Index multiplier = $100

(i) How many SIF contracts should you use to fully hedge your portfolio?

(ii) Outline the hedge strategy and show the resulting portfolio value assuming the market falls 20% by futures maturity.

Reference no: EM133114526

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