Suppose you have a loan of $5,000,000 outstanding, on which you will have to make a floating rate interest rate payment on monday october 3rd. 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 september 26th.

questions:

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 monday september 26th?

c. what is your daily gain or loss on your futures position (on tuesday, wednesday , thursday, friday and monday)?

d. what is the interest rate payment that you have to make on monday, october 3rd on your $5,000,000 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)?

DATA