Kendall National Bank is planning to make a \(\$ 10\) million short-term loan to Two-Dollar General. In the loan contract, Two-Dollar agrees to pay the principal and an interest of \(2.50 \%\) (annual) at the end of 180 days. Since Kendall National sells more 90-day CDs than 180-day CDs, it is planning to finance the loan by selling a 90-day CD now at the prevailing LIBOR of \(1.25 \%\), and then 90 days later (mid-September) sell another 90-day \(\mathrm{CD}\) at the prevailing LIBOR. The bank would like to minimize its exposure to interest rate risk on its future CD sale by taking a position in a September Eurodollar futures contract trading at 98.5 (CME index).

a. How many September Eurodollar futures contracts would Kendall National Bank need in order to effectively hedge its September CD sale against interest rate changes? Assume perfect divisibility.

b. Determine the total amount of funds the bank would need to raise on its CD sale 90 days later if the LIBOR is \(1.75 \%\) and if it is \(1.25 \%\) (assume futures are closed at the LIBOR). What would the bank's debt obligations be at the end of 180-day period? What is the bank's effective rate for the entire 180-day period?