1-year Eurodollar Strip to determine a 1-year Spot Rate . Consider the following quotes on a particular day in January March June Sep Dec 92 88 84 80 . An investor expects to receive $1m in March and wants to invest it for a year. He is concerned that the rates may fall by March and hence the return. Wants to lock in the interest rates earned in the future.March June Sep Dec 92 88 84 80 A: Long 1 March contract (in January) $1m turned to $1.147255m in a year. This is a With a 8% annual return (or 2% quarterly) the investor will guaranteed return because these rates were have $1.02m in June. locked. B: Long 1.02 June contracts (in January) With a 12% annual return (or 3% quarterly) the investor will The risk-free (annual) rate of return is 14.7255%. have $(1.02)(1.03)m = $1.0506m in Sep. This is also the 1 year spot rate. C: Long 1.0506 Sep contracts (in January) With a 16% annual return (or 4% quarterly) the investor will have $(1.02)(1.03)(1.04)m = $1.092624m in Dec. A Eurodollar strip consisting of: D: Long 1.092624 Dec contracts (in January) 1 March, 1.02 June, 1.0506 Sep, and 1.092624 With a 20% annual return (or 5% quarterly) the investor will Dec contracts bought in January guarantees an have $(1.02)(1.03)(1.04)(1.05)m = $1.147255m in March. annual rate of 14.7255%1. Consider the following quotes on the 3-month Eurodollar Futures contract as of Dec 2, 2016. March 2017 June 2017 September 2017 December 2017 98.95 98.815 98.715 98.57 What interest rate can an investor 'lock-in' for the coming year? Refer to the PowerPoint titled 'Ch15_Hedging.pptx' pages 6 and 7. 2. Please refer to the spreadsheet titled 'Ch15_Interest Rate_Swap_Valuation.xIsm' and the quotes in problem 1 above. Compute the fixed rate that equates the present value of floating payments and the fixed payments for a notional $50,000m. The 4 quarters are Dec to March, March to June, June to September and September to December