[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 April, a bank short-term investment manager has $1 million in 90 day T-bills that it plans to buy in June, and is worried about interest rates falling (i.e. T-bill prices rising) in the next few months, which would cause the price of the T-bills to rise. The current (spot) was a discount yield is 0.35% (i.e. a Discount % price of 99.65%) for a 90-day T-bill.

1. What is the $ price for the $ 1 million of T-bills in dollars?

T-bill Price in Dollars ______

On the CME Group website, a June Eurodollar Futures contract gives a price of 99.70% (i.e., a discount yield of 0.30%) for a $1 million, 90 day Eurodollar Futures contract.

2. 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?_______________________

3. Suppose in June the T-bill discount yield goes down by 20 basis points to 0.15%, and the Eurodollar Futures yield goes down by 20basis points to 0.10%, 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 ____________

4. What is the loss or gain for respectively the T-bills and the Eurodollar Futures contract? What is the net hedging result?

T-bill Position Loss _____Eurodollar Futures Gain_________

Net Hedging Result __________________