When tailing the hedge, the number of contracts is based on the value of the exposure relative to the futures contract value:

$$N^* = h^* \times \frac{Q_A S_0}{Q_F F_0}$$

Using:

• $h^* = 0.80 \times \frac{3.20}{5.10} \approx 0.502$
• $Q_A = 1{,}000{,}000$
• $S_0 = 40$
• $Q_F = 5{,}000$
• $F_0 = 49$

$$N^* = 0.502 \times \frac{1{,}000{,}000 \times 40}{5{,}000 \times 49} \approx 0.502 \times 163.27 \approx 81.9$$

Rounded to the nearest whole contract, this is 82 long contracts.

Correct answer: B) 82 contracts.