Ms. Hunter is a money market manager. In July, she anticipates needing cash in September that

she plans to obtain by selling ten $1 million face value T-bills she currently holds. At the time of

the anticipated September sale, the T-bills will have a maturity of 91 days. Suppose there is a

September T-bill futures contract trading at a discount yield of 6%.

a) Describe the interest rate risk that she is facing. Is it better if interest rates

increase or decrease?

b) How could she lock in the selling price on her T-bills?

c) What will be the locked in sale price?