Question
In June, the Carey Money Market Fund forecasted a September cash inflow of $15 million that it plans to invest for 92 days in T-bills.
In June, the Carey Money Market Fund forecasted a September cash inflow of $15 million that it plans to invest for 92 days in T-bills. The fund is uncertain about future short-term interest rates and would like to lock in the rate on the September investment with T-bill futures contracts. Currently, September T-bill contracts are trading at 93 (IMM index).
If the Carey Money Market Fund expects interest rates to be higher in September but is worried that rates would decrease. Suppose there is a September T-bill futures call contract with an exercise price of 93 (IMM index), trading at 5, and expiring at the same time as the September T-bill futures contract. How may call options do Carey need to lock in a minimum rate on its investment? What is the cost?
Group of answer choices
[A] 15 call contracts at cost of $18,750
[B] 18 call contracts at cost of $22,500
[C] 15 call contacts at cost of $75
[D] 18 call contacts at cost of $90
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started