Regency Inc. has a floating rate interest payment obligation in nine months from now. It wants to lock in this interest payment by entering into an interest rate futures contract. Interest rate futures for 9-months from now settled at 96.95. What is the effective yield on the available futures? What position should Regency take to lock in its borrowing rate?

1. 3.05%; Long
2. 3.05%; Short
3. 5.59%; Long
4. 5.59%; Short