Question 7 20 pts You are the treasurer of a company and realize that in 268 days your company will have $22m in excess cash for 90 days. The Market You first investigate the market and find the following market information: Days Cont. Comp. Rate 90 1.5000% 268 1.6000% 358 1.7000% You analyze the market information and determine that the fair ACT/360 deposit rate for a 90 day deposit starting immediately is , the fair ACT/360 deposit rate for a 90 day deposit starting in 268 days is . You also notice that there is a Eurodollar futures contract expiring in 268 days with a fair price of (enter all rates as 2.4444 meaning 2.4444%. Use 4 decimal places.). The Bank Given this information you go to your local bank and they quote the following rates: Immediate deposit for 90 days: 1.3822% Deposit for 90 days starting in 268 days: 1.5753% (an FRA) Immediate deposit for 90 days: 1.3822% Deposit for 90 days starting in 268 days: 1.5753% (an FRA) You quickly calculate the present value of the immediate deposit as and present value of the FRA as . On the FRA how much interest will you receive? (calculate from your perspective and round both answers to the nearest 0.01). You are annoyed with the bank for adding such a large spread to the FRA relative to the immediate deposit and then you remember about the Eurodollar futures contract. Eurodollar Futures Instead of using the FRA you decide to use the Eurodollar futures contract to hedge your exposure to changing rates. when the contract expires you intend to deposit money in your bank for 90 days. What position in Eurodollar futures contracts do you take? (enter 4 for long 4 contracts and -4 for short 4 contracts). The End You manage the Eurodollar futures contract until it expires. It ends with a price of 98.7247. How much money did you make or lose in your margin account through your position? (enter your answer to the nearest dollar) What is the new fair 90 day ACT/360 deposit rate? The bank offers you a rate of 1.1753%. What is the PV of your 90 day deposit? . On the deposit how much interest will you receive? Question 7 20 pts You are the treasurer of a company and realize that in 268 days your company will have $22m in excess cash for 90 days. The Market You first investigate the market and find the following market information: Days Cont. Comp. Rate 90 1.5000% 268 1.6000% 358 1.7000% You analyze the market information and determine that the fair ACT/360 deposit rate for a 90 day deposit starting immediately is , the fair ACT/360 deposit rate for a 90 day deposit starting in 268 days is . You also notice that there is a Eurodollar futures contract expiring in 268 days with a fair price of (enter all rates as 2.4444 meaning 2.4444%. Use 4 decimal places.). The Bank Given this information you go to your local bank and they quote the following rates: Immediate deposit for 90 days: 1.3822% Deposit for 90 days starting in 268 days: 1.5753% (an FRA) Immediate deposit for 90 days: 1.3822% Deposit for 90 days starting in 268 days: 1.5753% (an FRA) You quickly calculate the present value of the immediate deposit as and present value of the FRA as . On the FRA how much interest will you receive? (calculate from your perspective and round both answers to the nearest 0.01). You are annoyed with the bank for adding such a large spread to the FRA relative to the immediate deposit and then you remember about the Eurodollar futures contract. Eurodollar Futures Instead of using the FRA you decide to use the Eurodollar futures contract to hedge your exposure to changing rates. when the contract expires you intend to deposit money in your bank for 90 days. What position in Eurodollar futures contracts do you take? (enter 4 for long 4 contracts and -4 for short 4 contracts). The End You manage the Eurodollar futures contract until it expires. It ends with a price of 98.7247. How much money did you make or lose in your margin account through your position? (enter your answer to the nearest dollar) What is the new fair 90 day ACT/360 deposit rate? The bank offers you a rate of 1.1753%. What is the PV of your 90 day deposit? . On the deposit how much interest will you receive
