A bank can borrow or lend money at the same interest rate in the LIBOR market.

The $1-$month rate is $3\mathrm{.}0000\%$ and the $4-$month rate is $4\%$ both expressed with continuous compounding and a $365$ day year.

The $3-$month Eurodollar futures price quote for a futures contract with a delivery date in $1$ month is $95.$

The size of the Eurodollar futures contract is $$1$ million.

Use this information to answer this and the next two questions.

The theoretical futures price quote should be:

a$.95\mathrm{.}6667$

b$.95\mathrm{.}7028$

c$.96\mathrm{.}3333$

d$.95\mathrm{.}6431$

Which of the following is the correct arbitrage strategy?

a$.$ Buy the futures contract, borrow at the $4$ month rate, invest at the $1$month rate

b$.$ Sell the futures contract, borrow at the $4$ month rate, invest at the $1$ month rate

c$.$ Sell the futures contract, invest at the $4$ month rate, borrow at the $1$ month rate

d$.$ Buy the futures contract, invest at the $4$ month rate, borrow at the $1$ month rate

In $1$ month, a treasurer will invest in commercial paper with a face value of $$10$ million and a maturity of $180$ days.

If the commercial paper were purchased right away, its market price would be $9,523,810.$

The treasurer should hedge its interest rate risk by:

a$.$ Buying $9\mathrm{.}6444$ Eurodollar futures contracts

b$.$ Buying $19\mathrm{.}2887$ Eurodollar futures contracts

c$.$ Selling $9\mathrm{.}6444$ Eurodollar futures contracts

d$.$ Selling $19\mathrm{.}2887$ Eurodollar futures contracts