Question
Speedy Delivery Co. expects to receive$4 millionin 75 days as accounts receivables become due. As there are no major bills due until 90 days after
Speedy Delivery Co. expects to receive$4 millionin 75 days as accounts receivables become due. As there are no major bills due until 90 days after that, the company plans to invest the funds short-term.Worried about fallingrates, the CFO enters a90-day bills futures positionat 93.50 maturing at the plannedinvestment date. At maturity, the futures closes at 94.25.
1) The CFO enters a
(Click to select)
long
short
position in the futures contract forcontracts.
2) Compute the price of onefutures contract at the time that the CFOenters the position: $
3) Compute the holding period return for the company's hedge position at maturity (in percent; be mindful of the sign):%
4) Compute the P/L that arises from the hedge position (enter losses with a minus sign): $
5) Speedy Delivery Co.manages to invest into commercial paperat a yield of 6.07%. Compute the effective yield of this investment(in percent) taking into account the effect of the hedge (HINT: You can save a lot of time here by remembering the short cut calculation for simple interest instruments!):%
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