A fund manager has a portfolio worth $50 million with a beta of 1.35. The mana

A fund manager has a portfolio worth $50 million with a beta of 1.35. The manager is concerned about the performance of the market over the next three months
and plans to use four-month Mini S&P 500 futures contract to hedge the risk. The current level of the index is 1560 the risk-free rate is
0.60% per annum and the dividend yield on the index is 1.7% per annum. The current four-month futures price is 1555. One futures contract covers $50 times
the index.

Solution:

Number of contracts to hedge = 1.35*$50000000/1560/250=173.07

Thus rounding to the nearest whole number the investor should short 173 contracts to eliminate exposure to the market.