(23–5)

Hedging The Zinn Company plans to issue $10,000,000 of 20-year bonds in June to help finance a new research and development laboratory. The bonds will pay interest semiannually.

It is now November, and the current cost of debt to the high-risk biotech company is 11%. However, the firm’s financial manager is concerned that interest rates will climb even higher in coming months. The following data are available:

Futures Prices: Treasury Bonds—$100,000; Pts. 32nds of 100%

Delivery Month

(1)

Open

(2)

High

(3)

Low

(4)

Settle

(5)

Change

(6)

Open Interest

(7)

Dec 94’28 95’13 94’22 95’05 +0’07 591,944 Mar 96’03 96’03 95’13 95’25 +0’08 120,353 June 95’03 95’17 95’03 95’17 +0’08 13,597