Business Finance Homework Help

I need an explanation for this Risk Management question to help me study.

• 1. Explain how a portfolio manager can eliminate the systematic risk of his stock portfolio over the next month using futures on the S&P 500 index. What return does the manager expect on the hedged portfolio over the next month? What position in the S&P 500 futures should the manager take if he wants to reduce (rather than eliminate) the systematic risk of his stock portfolio by, e.g., 20% over the next month?
• 2. Assume that tomorrow is the day of the Brexit referendum. If the vote is in favour of “Leave”, the price of the FTSE 100 index will decrease. If the vote is in favour of “Remain”, the price of the index will increase. You can trade call and put options on the FTSE 100 index. Propose a trading strategy that has non-negative payoff irrespective of the referendum outcome and involves trading in at least two different options. What is the initial cost of implementing this strategy?