Suppose you have a loan of $10,000,000 outstanding, on which you will have to make a floating-rate interest rate payment on Wednesday, October 11th. 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 Thursday, October 5th.

a. 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)?

b. What is the value of your futures position on Thursday, October 5th?

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

d. What is the interest rate payment that you have to make on Wednesday, October 11th, on your $10,000,000 loan?

e. 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)?

3-month LIBOR rate:

October 5, 2017 1.34667

October 6, 2017 1.34861

October 9, 2017 1.35028

October 10, 2017 1.35639

October 11, 2017 1.35667

Daily Settlements for Eurodollar Futures (FINAL)Trade Date: 10/05/2017 (Thursday)

Month	Open	High	Low	Last	Change	Settle	Estimated Volume	Prior Day Open Interest
OCT 17	98.6400	98.6425	98.6350	98.6375	UNCH	98.6375	19,008	168,618
NOV 17	98.5850	98.5850	98.5750	98.5750	-.0050	98.5750	18,211	72,589
DEC 17	98.5000	98.5050	98.4850	98.4900	-.0050	98.4950	260,863	1,923,591
JAN 18	98.4700	98.4700	98.4650A	98.4650A	-.0100	98.4650	25	1,968
FEB 18	-	-	98.4200A	98.4200A	-.0100	98.4150	0	1,927

Daily Settlements for Eurodollar Futures (FINAL)Trade Date: 10/09/2017 (Monday)

Month	Open	High	Low	Last	Change	Settle	Estimated Volume	Prior Day Open Interest
OCT 17	98.6375	98.6375	98.6300	98.6325	-.0050	98.6325	4,179	165,474
NOV 17	98.5700	98.5700	98.5650	98.5700	-.0050	98.5650	806	78,331
DEC 17	98.4850	98.4900	98.4750	98.4850	-.0050	98.4800	30,113	1,876,167
JAN 18	-	-	-	-	-.0050	98.4500	0	1,939
FEB 18	-	-	-	-	-.0050	98.4000	0	1,927

Daily Settlements for Eurodollar Futures (FINAL)Trade Date: 10/11/2017 (Wednesday)

Month	Open	High	Low	Last	Change	Settle	Estimated Volume	Prior Day Open Interest
OCT 17	98.6375	98.6375	98.6325	98.6350	-.0025	98.6350	6,984	165,785
NOV 17	98.5750	98.5750	98.5700	98.5700	UNCH	98.5700	5,488	80,141
DEC 17	98.4900	98.4900	98.4800	98.4850	UNCH	98.4850	194,848	1,877,475
JAN 18	98.4550	98.4550	98.4550	98.4550	UNCH	98.4550	176	1,939
FEB 18	-	-	-	-	-.0050	98.4050	0	1,927