Use the following to answer questions 29-31 KKR issues a $10 million 18-month floating rate note priced at LIBOR plus 400 basis points. 29. What is KKR's interest rate risk exposure and how can it be hedged? A) B) C) D) E) KKR is exposed to interest rate increases, short hedge by selling futures or buying put options KKR is exposed to interest rate increases; long hedge by buying futures or buying call options KKR is exposed to interest rate decreases; long hedge by buying futures or buying call options KKR is exposed to interest rate decreases; short hedge by selling futures or buying put options KKR is exposed to interest rate increases; short hedge by buying futures or buying call options 30. Which of the following is not a characteristic of a loan commitment? A) B) C) D) The maximum amount of the loan is negotiated at the time of the loan agreement. The interest rate on fixed-rate loans is determined at the time of the loan takedown. Floating-rate loans transfer the interest rate risk to the borrower The time period for which the loan is available is negotiated at the time of the loan E) More than one of the above are not characteristic of a loan commitment. 5 POINT QUESTION What is KKR's hedge position if it wants to completely hedge the interest rate risk exposure using a 91-day Treasury bill futures contract? A) Buy 1 $1 million 91-day Treasury bill futures contract. B) Buy 10 S1 million 91-day Treasury bill futures contracts C) Sell 10 $1 million 91-day Treasury bill futures contracts. D) Sell 1 S1 million 91-day Treasury bill futures contract. E) Sell 1 S10 million 91-day Treasury bill futures contract. 31