Suppose that today is Monday, February 17 th and you have a loan of $10,000,000 outstanding, on which you will have to make a floating rate interest rate payment on Friday, February 2 The interest payment is determined based on a 3 month LIBOR rate on that day You fear that in the next several days the rate might rise So you hedge yourself by trading Eurodollar futures Assume that you enter into the position at close of day on Monday, February 17th In order to hedge yourself, which position in Eurodollar futures will you take (i e buy or sell, contract maturity, and the number of contracts) What is the value of your futures position on Monday, February 17th What is your daily gain or loss on your futures position (on Tuesday, Wednesday, Thursday, and Friday) What is the interest rate payment that you have to make on Friday, February 21, on your $10,000,000 loan What is the net cost to you, taking into account the gains losses on your hedge, plus the interest payment on the loan (ignore the time value of money) Daily Settlements for Eurodollar Futures (FINAL)Trade Date 02 18 2020 (Tuesday) Month Open High Low Last Change Settle Estimated Volume Prior Day Open Interest MAR 20 98 3425 98 3500 98 3350 98 3450 0025 98 3475 327,175 1,515,029 APR 20 98 3650 98 3850 98 3650 98 3800 0150 98 3850 41,472 166,515 MAY 20 98 4100 98 4350 98 4050 98 4250 0150 98 4300 17,575 27,196 JUN 20 98 4450 98 4800 98 4350 98 4650 0250 98 4750 316,825 1,472,443 JLY 20 98 5100 98 5100 98 4750A 98 5100 0250 98 5050 1 507 Daily Settlements for Eurodollar Futures (FINAL)Trade Date 02 20 2020 (Thursday) Month Open High Low Last Change Settle Estimated Volume Prior Day Open Interest MAR 20 98 3325 98 3525 98 3275 98 3475 0150 98 3475 281,404 1,539,280 APR 20 98 3650 98 3900 98 3600 98 3850 0200 98 3850 36,936 172,311 MAY 20 98 4100 98 4450 98 4100 98 4350 0250 98 4350 17,969 34,572 JUN 20 98 4550 98 4950 98 4450 98 4800 0300 98 4850 311,053 1,512,715 JLY 20 98 5000 98 5250B 98 5000 98 5250B 0300 98 5150 165 507 Daily Settlements for Eurodollar Futures (FINAL)Trade Date 02 21 2020 (Friday) Month Open High Low Last Change Settle Estimated Volume Prior Day Open Interest MAR 20 98 3450 98 3700 98 3450 98 3575 0175 98 3650 340,805 1,518,942 APR 20 98 3850 98 4250 98 3850 98 4100 0300 98 4150 22,384 173,882 MAY 20 98 4400 98 4900 98 4400 98 4750 0450 98 4800 22,934 37,017 JUN 20 98 4850 98 5500 98 4800 98 5300 0500 98 5350 444,875 1,529,526 JLY 20 98 5300 98 5800B 98 5300 98 5650 0500 98 5650 162 517 3 month LIBOR rate February 17, 2019 1 69288 February 18, 2019 1 69463 February 19, 2019 1 69600 February 20, 2019 1 68275 February 21, 2019 1 67925

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 04, 2024

Suppose that today is Monday, February 17^th and you have a loan of $10,000,000 outstanding, on which you will have to make a floating-rate interest rate payment on Friday, February 2 The interest payment is determined based on a 3-month LIBOR rate on that day. You fear that in the next several days the rate might rise. So you hedge yourself by trading Eurodollar futures. Assume that you enter into the position at close of day on Monday, February 17th.

In order to hedge yourself, which position in Eurodollar futures will you take (i.e. buy or sell, contract maturity, and the number of contracts)?

What is your daily gain or loss on your futures position (on Tuesday, Wednesday, Thursday, and Friday)?

What is the interest rate payment that you have to make on Friday, February 21, on your $10,000,000 loan?

What is the net cost to you, taking into account the gains/losses on your hedge, plus the interest payment on the loan (ignore the time value of money)?

Daily Settlements for Eurodollar Futures (FINAL)Trade Date: 02/18/2020 (Tuesday)

Daily Settlements for Eurodollar Futures (FINAL)Trade Date: 02/20/2020 (Thursday)

Daily Settlements for Eurodollar Futures (FINAL)Trade Date: 02/21/2020 (Friday)