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In June, an investor finds out that in September she will receive $10 million to invest in three month maturity securities. In June, the 91

In June, an investor finds out that in September she will receive $10 million to

invest in three month maturity securities. In June, the 91 day Treasury bill rate is

5.50%. What is the investor's profit (loss) if the 91 day rate falls to 5.20% in

September?

11. If the investor wants to use Treasury bill futures to hedge the interest rate risk in

the above question, what can she do? What are the returns on the futures hedge?

a.

She earns $30,000 on the long futures hedge.

b.

She earns $7,584 on the long futures hedge.

c.

She earns $3,000 on the short futures hedge.

d.

She earns $7,584 on the short futures hedge.

e.

She earns $30,000 on the short futures hedge.

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