4. As the manager of a large, well-diversified school endowment fund, you are actively con- sidering implementing sophisticated derivative strategies to protect your fund's market value in the event...

Extracted text: 4. As the manager of a large, well-diversified school endowment fund, you are actively con- sidering implementing sophisticated derivative strategies to protect your fund's market value in the event of a substantial decline in the overall level of equity prices. Your col- leagues have suggested that you acquire either (1) a short position in an S&P 500 Index futures contract or (2) a long position in an S&P index put option contract. Explain how each of these derivative strategies would affect the risk and return of the resulting aug- mented endowment portfolio.