NPR

It is July 17 and a portfolio manager at NPR is concerned over the increased volatility of the market and plans to hedge his $430 million growth portfolio over the next three months. The beta of his portfolio is 1.65. The December futures contract for the S&P 500 index is currently quoted at 874.5. The value of each futures contract is 250 times the value of the index.

What actions you would take to protect the value of the portfolio over the next three months?

What is the hedge ratio?

Show what happens if the market drops by 8 % over the next three months.

Show what happens if the market advances by 5 % over the next three months.