The CFO of a firm plans to issue bonds with a par value of $50 million at the end of the next quarter. Economic forecasts indicate that Treasury rates are expected to rise when the issuer plans to bring the bond issue to market.

a. Explain how the CFO can use interest rate futures to protect against a rise in Treasury rates.

b. Explain how the CFO can use an option to protect against a rise in Treasury rates.

c. Compare the strategies in

(a) and

(b) with respect to how they allow the CFO to take advantage of a decline in interest rates.