Problem 3.31 A fund manager has a portfolio worth 566 million with a beta of 0.90. The manager is concerned about the performance of the market over the next two months and plans to use three-month futures contracts on a well-diversified index to hedge its risk. The current level of the index is 1350, one contract is on 260 times the index, the risk-free rate is 9% per annum, and the dividend yield on the index is 4.4% per annum. The current3 month futures price is 1 260. a) What position should the fund manager take to eliminate all exposure to the market over b) Calculate the effect of your strategy on the fund manager's returns if the level of the the next two months? market in two months is 1,000. 1,100, 1,200, 1,300, and 1,400. Assume that the one- month futures price is 0.25% higher than the index level at this time X. a