Questiоn 7C (13.34 pоints) Yоu hаve recently joined аn аsset management firm as a junior portfolio manager. During your first investment committee meeting, another junior manager makes the following statement: "I don't understand why professional portfolio managers use stock index futures to hedge portfolios. Instead, they should simply buy put options. The maximum loss on the option is only the premium, they keep all of the upside if the market rises, and therefore options are always superior to futures for hedging. Since options require only a small premium, they are also much less expensive than futures." As the senior portfolio manager, prepare a memorandum evaluating this recommendation. In your answer: Identify and explain at least six conceptual errors or misleading statements. Explain the different economic purposes of futures contracts and options. Discuss the situations in which futures are preferred and those in which options are preferred. Explain why portfolio managers frequently choose futures even though options provide asymmetric payoffs.