Hedging with Interest Rate Futures (Chapter 8, pp. 191 to 193). [Hints: $ Price for T-bills and Eurodollar Futures: $ Price = $ Amount {1 [(d x n)/360]} where d = discount yield as a fraction; n = maturity, usually 90 days] In early October, a bank short-term investment manager has $1 million in 90 day T-bills on its balance sheet that it plans to sell in December for liquidity purposes, and is worried about interest rates rising (i.e. prices falling) in the next few months, which would cause the value of the T-bills to fall. The current (spot) was a discount yield is 0.09% (i.e. a Discount % price of 99.91%) for a 90-day T-bill. a. What is the price for the $ 1 million of T-bills in dollars? T-bill Price in Dollars ________ On the CME Group website, a December Eurodollar Futures contract gives a price of 99.76% (i.e., a discount yield of 0.24%) for a $1 million, 90 day Eurodollar Futures contract. b. What is the contract price for the Eurodollar Futures Contract in dollars? Eurodollar Futures Price in Dollars ______________ What type of Eurodollar futures contract should be purchased (long or short)? Explain why. Long or Short _______ Why?_______________________ c. Suppose in December the T-bill discount yield goes up by 21 basis points to 0.30%, and the Eurodollar Futures yield goes up by 20 basis points to 0.44%, what is the new dollar price for the 1 mil. T-bills, and what is the new contract dollar price for the Eurodollar Futures Contract? New T-bill Price in Dollars _______________ New Eurodollar Futures Price in Dollars ____________