1.Suppose you have a loan of $10,000,000 outstanding, on which you will have to make a floating-rate interest rate payment on Monday, October 3d. The interest payment is determined based on a 3-month LIBOR rate on that day. You fear that in the next several days the rate might rise. So you hedge yourself by trading Eurodollar futures. Assume that you enter into the position at close of day on Monday, September 26th.

a.In order to hedge yourself, which position in Eurodollar futures will you take (i.e. buy or sell, contract maturity, and the number of contracts)?

b.What is the value of your futures position on Monday, September 26th?

c.What is your daily gain or loss on your futures position (on Tuesday, Wednesday, Thursday, Friday, and Monday)?

d.What is the interest rate payment that you have to make on Monday, October 3d, on your $10,000,000 loan?

e.What is the net cost to you, taking into account the gains/losses on your hedge, plus the interest payment on the loan (ignore the time value of money)?

Data for questions:

Daily Settlements for Eurodollar Futures (FINAL)Trade Date: 09/27/2016 (Tuesday)

Month	Open	High	Low	Last	Change	Settle	Estimated Volume	Prior Day Open Interest
OCT 16	99.1325	99.1325	99.1200	99.1275	-.0050	99.1275	41,109	251,792
NOV 16	99.1250	99.1250	99.1100	99.1200	-.0050	99.1200	38,081	94,419
DEC 16	99.1000	99.1000	99.0700	99.0900	-.0100	99.0850	295,720	1,571,699
JAN 17	99.0750	99.0750	99.0700A	99.0750	-.0050	99.0750	90	511
FEB 17	-	-	99.0650A	99.0700B	-.0100	99.0650	0	103

Daily Settlements for Eurodollar Futures (FINAL)Trade Date: 09/29/2016 (Thursday)

Month	Open	High	Low	Last	Change	Settle	Estimated Volume	Prior Day Open Interest
OCT 16	99.1525	99.1525	99.1425	99.1475	-.0025	99.1450	71,122	268,608
NOV 16	99.1350	99.1350	99.1200	99.1200	-.0050	99.1250	26,279	115,764
DEC 16	99.0900	99.0950	99.0800	99.0800	UNCH	99.0850	310,423	1,616,987
JAN 17	99.0750	99.0750	99.0700A	99.0750	UNCH	99.0750	210	511
FEB 17	-	-	-	-	+.0050	99.0750	0	103

Daily Settlements for Eurodollar Futures (FINAL)Trade Date: 10/03/2016 (Monday)

Month	Open	High	Low	Last	Change	Settle	Estimated Volume	Prior Day Open Interest
OCT 16	99.1375	99.1375	99.1275	99.1325	-.0075	99.1300	17,889	276,265
NOV 16	99.1200	99.1200	99.1100	99.1100	-.0100	99.1100	10,446	119,565
DEC 16	99.0800	99.0800	99.0600	99.0700	-.0150	99.0650	175,076	1,624,209
JAN 17	-	-	99.0550A	99.0550A	-.0100	99.0550	0	593
FEB 17	-	-	99.0550A	99.0550A	-.0200	99.0450	0	103

3-month LIBOR rate:

September 26, 2016 0.85294

September 27, 2016 0.85294

September 28, 2016 0.85378

September 29, 2016 0.83769

September 30, 2016 0.84561

October 3, 2016 0.85367