Use the following information for questions a through e. On September 16, a bank needs to issue $55 million of 180-day Eurodollar time deposits. The current rate of such time deposits is 7.25%. The bank is considering the alternative of issuing a 90 day time deposit at its current rate of 6.75% and selling a eurodollar futures contract.

a.

The rates available in the spot and futures market are such that the bank can obtain a better rate by issuing a 90 day time deposit for $55 million. The December Eurodollar IMM index is at 93, implying a price per $100 face value of 98.25. If the price per contract is the $982,500 the bank should sell

Select one:

a. 56 contracts

b. 50 contracts

c. 44 contracts

d. 66 contracts

b.On December 16th, the Eurodollar Index is at 96, translating into a price per $100 face value of 99. The bank will then buy the amount of contracts sold. In addition, the 90 day time deposit will mature. The bank then has to pay back $55,928,125 for the 90 day time deposit. The bank will issue another 90 day time deposit amount at a new rate of 6.00% for which amount?

Select one:

a. $55,970,125

b. $55,842,599

c. $55,370,000

d. $55,350,000

c. If the 180-day time deposit is issued, this implies an effective rate of:

Select one:

a. 7.49 percent

b. 6.57 percent

c. 7.99 percent

d. 8.13 percent

d. If the 180-day time deposit is issued the bank will have to pay back:

Select one:

a. 58,743,725

b. 55,875,000

c. 57,500,000

d. 56,993,750

e. The effective borrowing rate over the 180 days is:

Select one:

a. 7.50%

b. 6.69%

c. 7.25%

d. 6.92%