You Manage $15 Million Hedge Fund Portfolio with Beta =

You manage $15 million hedge fund portfolio with beta = 1.2 and alpha = 2% per quarter. Assume that the risk-free rate is 2% per quarter and the current value of the S&P 500 index = 1200. You want to exploit positive alpha but you are afraid are afraid that the share market may fall and want to hedge your portfolio by selling the 3-month S&P 500 future contracts. The S&P contract multiplier is $250. How many S&P 500 contracts do you need to sell to hedge your portfolio?

A) 25
B) 30
C) 40
D) 50

Correct Answer:

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