creating synthetic cash formula & question his, currently, following, creating

soddy1979

An investor has a $100 million stock portfolio with a beta of 1.1. He would like to hedge his portfolio using S&P 500 futures contracts, which are currently trading at 596.70. The futures contract has a multiple of 250. Which of the following is the CORRECT trade required to create a synthetic T-bill?
A) Sell 670 contracts.
B) Buy 670 contracts.
C) Sell 737 contracts.
Your answer: A was incorrect. The correct answer was C) Sell 737 contracts.
The position created by risk-minimizing hedging is essentially the creation of a synthetic T-Bill. The number of futures contracts required for the risk-minimizing hedge is computed as follows:
Number of contracts = Portfolio value / Futures contract value