A company expects to borrow $1 million in three months. While the current interest rate is 7 per cent per annum, the Treasurer expects interest rates will rise. Hence, it goes short in a 90-day bank bill futures contract at 92.500. Calculate the effective cost of borrowing as a result of the hedge constructed above, assuming that interest rate will, in fact, increase to 8 per cent per annum and that the 90-day bank bill futures co

• 7.5 per cent per annum

• none of the answers provided

• 7.25 per cent per annum

• 8.00 per cent per annum

ntract will be traded at 91.750 in three months' time.