Question
Golden Co is planning to take out a six-month fixed rate loan of $5 million in three months' time. It is 1 December, and an
Golden Co is planning to take out a six-month fixed rate loan of $5 million in three months' time.
It is 1 December, and an exchange is quoting the following prices for a standard $500,000 three-month contract. Contracts expire at the end of the relevant month. LIBOR is 5.25%.
Prices are as follows:
December 94.75
March 94.65
June 94.55
September 94.45
Required
- Illustrate the outcome of a futures hedge, assuming that a loan is taken out at LIBOR+1% fixed at the start of the loan and that LIBOR is 5.75% on 1 March.
- State two advantage and two disadvantage of of futures
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Asset Allocation From Theory To Practice And Beyond
Authors: Mark P. Kritzman, William Kinlaw, David Turkington, Harry M. Markowitz
1st Edition
1119817714, 978-1119817710
