As we discussed in the chapter, futures can be used to eliminate systematic risk in a stock portfolio, leaving it essentially a risk-free portfolio. A portfolio manager can achieve the same result, however, by selling the stocks and replacing them with T-bills. Consider the following stock portfolio.
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Suppose the portfolio manager wants to convert this portfolio to a riskless portfolio for a period of one month. The price of a particular stock index futures with a $500 multiplier is 369.45. To sell each share would cost $20 per order plus $0.03 per share. Each company's shares would constitute a separate order. The futures contract would entail a cost of $27.50 per contract, round-trip. T-bill purchases cost $25 per trade for any number of T-bills. Determine the most cost-effective way to accomplish the manager's goal of converting the portfolio converting it back?

Number Stock Northrop Grumman H.J. Heinz Washington Post Disney Wang Labs Wisconsin Energy General Motors Union Pacific Royal Dutch Shell Illinois Power of Shares Price Beta 18.13 1.10 8,755 36.13 1.05 1,245 264.00 1.05 8,750 350 1.25 4.25 120 2,48029.00 0.65 14,750 48.75 0.95 2,900 50 1.20 7,500 78.75 0.75 15.50 0.60 14,870 33,995 3,550