the Zinn company plans to issue $10,000,000 of 20-year bonds in June to help finance a new research and development laboratory. The bonds will pay interest semiannually. It is now November, and the current cost of debt to the high-risk biotech company is 11%. However, the firm's financial manager is concerned that interest rates will climb even higher in coming months. The following data are available:

Futures price: Treasury Bonds- $100,000; pts- 32nds of 100%

Delivery month Open High Low Settle Change Open Interest

December 94'28 95'13 94'22 95'05 +0'07 591,944

Mar 96'03 96'03 95'13 95'25 +0'08 120,353

June 95'03 95'17 95'03 95'17 +0'08 13,597

a. Use the data given to create a hedge against rising interest rates.

b. Assume that interest rates in general increase by 200 basis points. How well did your hedge perform?

c. what is a perfect hedge ? are any real-world hedges perfect ? Explain.