1. Carter Bank, which has a positive duration gap, anticipates the need to borrow some funds for next year, however, it wants to lock in today's short-term borrowing rate just in case it rises next year. Carter decides to purchase a loan (a short-term bond, Bpv) today and, rather than use cash to pay for it, finances it by borrowing at today's current short-term borrowing rate of Repo=4%. Carter also enters into a futures contract with a pension (hedge) fund, agreeing to deliver the bond at a price of $1,025 in the future in exchange for the cash funds next period. The futures contract requires the pension fund to pay $1,025 cash to Carter Bank when Bpy is delivered. Because the pension fund would not own Bpy until then, it would forgo the zero-rate payment (e.g., the pull-to-par component when a zero trades at a discount), which is calculated based on $1,000 face value and a ZERO=3%. a. From Carter's point of view, is the carry (i.e., net financing cost) positive or negative? Show your work. What might the carry suggest about the slope of the yield curve? Explain. b. Compute the implied futures price of the bond. Show your work. 1. Carter Bank, which has a positive duration gap, anticipates the need to borrow some funds for next year, however, it wants to lock in today's short-term borrowing rate just in case it rises next year. Carter decides to purchase a loan (a short-term bond, Bpv) today and, rather than use cash to pay for it, finances it by borrowing at today's current short-term borrowing rate of Repo=4%. Carter also enters into a futures contract with a pension (hedge) fund, agreeing to deliver the bond at a price of $1,025 in the future in exchange for the cash funds next period. The futures contract requires the pension fund to pay $1,025 cash to Carter Bank when Bpy is delivered. Because the pension fund would not own Bpy until then, it would forgo the zero-rate payment (e.g., the pull-to-par component when a zero trades at a discount), which is calculated based on $1,000 face value and a ZERO=3%. a. From Carter's point of view, is the carry (i.e., net financing cost) positive or negative? Show your work. What might the carry suggest about the slope of the yield curve? Explain. b. Compute the implied futures price of the bond. Show your work