Explanation

To calculate the number of futures contracts needed to adjust portfolio beta, we use the formula:

$N = \frac{(\beta_T - \beta_P) \times V_P}{F \times M}$

Where:

• $\beta_T$ = Target beta = 0.75
• $\beta_P$ = Current portfolio beta = 1.1
• $V_P$ = Portfolio value = USD 300,100,000
• $F$ = Futures price = 1457
• $M$ = Multiplier = 250

Substituting the values:

$N = \frac{(0.75 - 1.1) \times 300,100,000}{1457 \times 250}$ $N = \frac{(-0.35) \times 300,100,000}{364,250}$ $N = \frac{-105,035,000}{364,250}$ $N = -288.3$

The negative sign indicates we need to sell futures contracts. Therefore, we need to sell 288 contracts to reduce the portfolio beta from 1.1 to 0.75.

Answer: A. 288 contracts