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The December Eurodollar futures contract is quoted as 98.40 and a company plans to borrow$8million for three months starting in December. (a)What rate can the

The December Eurodollar futures contract is quoted as 98.40 and a company plans to borrow$8million for three months starting in December.

(a)What rate can the company lock in by using the Eurodollar futures con- tract? Long or short the Eurodollar futures contract? How many contracts?
(b)If the actual three-month LIBOR in December turns out to be1.3%with quarterly compounding, How would you explain that the company can ef- fectively borrow at the lock-in rate in part (a)?

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