What position should the fund manager take

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A fund manager decides to hedge a $3 million portfolio over the next 2-months using futures contracts on a stock index. The portfolio has a beta of 0.91. The current value of the index is 1100 and the current futures price is 1110. One contract is 250 times the index. The risk-free rate is 6% per year and the dividend yield 3% per year.

a) What position should the fund manager take in the futures contracts. (Round your answer to the nearest integer)

b) The fund manager closes out the futures contracts 2-month later when the futures price is 1203. Determine the gain on the futures contracts. (Answer to the nearest dollar)

c) If the value of the stock index when the futures contracts are closed is 1200, calculate the combined gain of the portfolio plus the futures. (Answer to the nearest dollar)

Reference no: EM133072903

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