Your firm, whose cost of capital is 4%, has been a net borrower of commercial paper for several months. You are preparing a new $20-million issue of 180-day commercial paper and the current cash market rate is 5.5%. The futures rate on a comparable instrument is 5.75%. You plan to issue the paper in two weeks, but given the recent volatility in the money market, you are uncertain of the rate the paper will be priced at upon issuance. Assume that margin is $1,500 per futures contract, the contract denomination is $0.5 million and the roundtrip Commission rate is $100 per contract.

a.Assume that cash rates are 6.5% at issuance in two weeks and the futures contract is 6.75%, what is the net position of the hedge?