Question
[Hints: $ Price for T-bills and Eurodollar Futures: $ Price = $ Amount {1 [(d x n)/360]} where d = discount yield as a fraction;
[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.
- 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.
- 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?_______________________
- 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 ____________
- 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 __________________
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