2. Question 2 [Total: 20 marks] a) Suppose that on October 24, 2020, a company sells one April 2021 live-cattle futures contract. It closes out its position on January 21, 2021. The futures price (per pound of live cattle) is 91.50 cents, when it enters into the contract and 88.30 cents, when it closes out the position. One contract is for delivery of 50,000 pounds of cattle. i) What is the total profit or loss the company made on the futures, when it closes out the position? [5 marks] ii) What is the total effective price on January 21, 2021, if the spot price per pound on that day is 88.10 cents? [5 marks] b) A portfolio manager has maintained an actively managed portfolio with a beta of 0.3. During last year, the risk-free rate was 5% and equities (the market) performed very badly providing a return of -30%. The portfolio manager produced a return of -10% and claims that in these circumstances it was a good performance. Compute the expected return of the portfolio and discuss the validity of portfolio manager's claim. [10 marks]