1. A bank is considering issuing $100 million in short-term deposits for a term of 270 days. Currently annual interest rates are 1.50 percent on such deposits, however the bank expects rates on comparable deposits to rise to 1.75 percent during the 270-day period. As a result the bank plans to hedge its position by selling $100 million 1- year Treasury Notes futures contract currently at an index price of 94. Interest rates rise as expected and the bank offsets its position by buying futures contract at 93.75. (a) Calculate the change in dollar interest income from issuing the deposits if interest rates rise. (b) Calculate the pre-tax gain or loss resulting from the futures position. (c) Calculate the overall combined pre-tax gain or loss from the cost of issuing loans and the futures contract.