Please do not round intermediate calculations, thank you!
6. Problem 18.06 (Hedging) eBook The Zinn Company plans to issue $23,000,000 of 10-year bonds in March 2018 to help finance a new research and development laboratory. Assume that interest rate futures maturing in March 2018 are selling for 125-145. It is now early June, and the current cost of debt to the high-risk biotech company is 12 %. However, the firm's financial manager is concerned that interest rates will climb even higher in coming months. a. Create a hedge against rising interest rates. Do not round intermediate calculations. Round your answer to the nearest dollar future contacts (each for $100,000 in 10-year, 6 % semiannual coupon Treasury notes) To hedge against rising interest rates, the firm should-Select Thus, the firm-Select # hedged against rising interest rates The value of Zinn's futures is $ b. Assume that interest rates generally increase by 200 basis points. How well did your hedge perform? (Note that the future contracts are on 10-year, 6 % semiannual coupon Treasury notes.) Do not round intermediate calculations. Round your answer to the nearest dollar. The loss, if any, should be indicated by a minus sign. On net, the firm's gain/loss is c. What is a perfect hedge? Are most real-world hedges perfect? In a perfect hedge, the gains on futures contracts-Select- underlying asset-Select ] identical to the futures asset the losses due to rising interest rates. It is -Select to create a perfect hedge, since in most cases the 6. Problem 18.06 (Hedging) eBook The Zinn Company plans to issue $23,000,000 of 10-year bonds in March 2018 to help finance a new research and development laboratory. Assume that interest rate futures maturing in March 2018 are selling for 125-145. It is now early June, and the current cost of debt to the high-risk biotech company is 12 %. However, the firm's financial manager is concerned that interest rates will climb even higher in coming months. a. Create a hedge against rising interest rates. Do not round intermediate calculations. Round your answer to the nearest dollar future contacts (each for $100,000 in 10-year, 6 % semiannual coupon Treasury notes) To hedge against rising interest rates, the firm should-Select Thus, the firm-Select # hedged against rising interest rates The value of Zinn's futures is $ b. Assume that interest rates generally increase by 200 basis points. How well did your hedge perform? (Note that the future contracts are on 10-year, 6 % semiannual coupon Treasury notes.) Do not round intermediate calculations. Round your answer to the nearest dollar. The loss, if any, should be indicated by a minus sign. On net, the firm's gain/loss is c. What is a perfect hedge? Are most real-world hedges perfect? In a perfect hedge, the gains on futures contracts-Select- underlying asset-Select ] identical to the futures asset the losses due to rising interest rates. It is -Select to create a perfect hedge, since in most cases the
