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Question 2. Hedging Using Index Futures 20% Assume that you are managing a portfolio tracking the S&P index. The value of your portfolio is $3 million USD. The Beta () of your portfolio is currently 2.5. Assume that you are going to use Index Futures (with underlying of S&P index) to perform hedging or speculation. . Answer Question 2 - Part A and Part B below based on the following assumptions: Value of Portfolio (53 million) $3,000,000 A Value of the assets (index) underlying one Index Futures contract (= futures price * contract size) $1000 Beta () of Portfolio B 2.5 Question 2 - Part A 10% What position and number of Index Futures contracts are needed to reduce the Beta of the portfolio from 2.5 to 0.75 (i.e., Target Beta (after using futures) - Bo= 0.75). In your answer, (i) Discuss the position (long or short) of Index Futures; and (ii) Calculate the number of Index Futures contracts. [Show your answers, including any formula, steps/calculations, and discussions as clear as possible) Question 2 - Part B 110% What position and number of Index Futures contracts are needed to increase the Beta of the portfolio from 2.5 to 3.25 (i.e., Target Beta (after using futures) = B = 3.25). In your answer, (i) Discuss the position (long or short) of Index Futures, and (ii) Calculate the number of Index Futures contracts

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