On 27 April 200X the yield on ninety-day bank bills is 7 per cent per annum and the ninety-day bank accepted bill futures contract maturing in September 200X is quoted at 92.75.

Red Timber Limited is planning to borrow approximately R2,000,000.00 by activating a bill facility during June.

On 27 April the company sells two bill futures contracts and its financial manager expects to lock in a borrowing cost of 100 – 92.75 = 7.25 per cent per annum.

On 28 June the company issues bills with a total face value of R2,000,000.00 at a yield of 7.5 per cent per annum and closes out the futures position at 92.60.

What is the effective cost of the borrowed funds after allowing for the gain or loss on the futures contracts? Show all your calculations.