5. A borrower needs to borrow $10 million from March next year for three months. The borrower decides to use 10 Eurodollar Futures contacts to hedge. Should the borrower take long or short position? If the current price of March Eurodollar Futures contact is 94.4, what will be the borrowers payoff from the futures position if the 3-month effective LIBOR is 2% in March, i.e., 8% annualized?

   1. Long position. The payoff in March is $60,000.

   2. Long position.The payoff in June is$61,200.

   3. Short position.The payoff in March is$60,000.

   4. Short position. The payoff in March is $60,000.

   5. Short position. The payoff in June is $61,200.

6. Suppose an investor is speculating with a strategy employing a long position in a call option with strike price of $830 and a short position in a call option with strike price of $850. The premiums for the 830-strike call and 850-strike call are $43.25 and $30.51 respectively. Both options expire in 6 months and the continuously compounding annual interest rate is 5%. At what stock price 6 months later, does the investor break even?

   A. $850.00 B. $843.39 C. $843.06 D. $842.74 E. $830.00