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1. In late December, a corporate Treasurer, John Sturta, projects that cash ow will require a $1 million borrowing on March 15. The contractual loan
1. In late December, a corporate Treasurer, John Sturta, projects that cash ow will require a $1 million borrowing on March 15. The contractual loan rate is 1 percent over LEBCIR. As of December 5, the 3month LIBCIR rate was 8.3?5 percent and the March Eurodollar futures rate was 11.65 percent {price 33.35). The Treasurer is concerned that interest rates ma},F rise between December and March. The projection for the future is that on March 15, the 3month LEBCIR rate would be 11.125 percent and the Eurodollar futures rate would be 14.60 percent (price 35.413}. 3 months a State what kind of hedge would he take and why. {logical answer) b. Compute the firm's actual interest cost in dollars. c Compute gain or loss in the futures market after describing the transactions. d Calculate effective annualized interest cost
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