Assume today is the 4th May and you intend to issue a single 110 day bank accepted
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Question:
Assume today is the 4th May and you intend to issue a single 110 day bank accepted bill on the 12th June. You decide to take a position in a bank bill futures contract to hedge the interest rate risk that you face between now and the 12th June. The table below provides the spot and futures prices of the underlying bank bills at both the 4th May and the 12th June.
|
| 4th May | 12th June |
| 90 day BAB spot | $ 950,000 | $ 955,000 |
| 110 day BAB spot | $ 880,000 | $ 884,000 |
| 90 day BAB futures | $ 951,000 | $ 958,000 |
Calculate the actual amount raised on the 12th June from the bank bill issue plus any profit or loss in closing out the futures contract.
| A. | $886,000 | |
| B. | $880,000 | |
| C. | $884,000 | |
| D. | $883,000 | |
| E. | $877,000 |
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