In June, the Kendall Money Market Fund forecast a September cash inflow of

$18 million that it plans to invest for 91 days in T-bills. The fund is uncertain about future short-term interest rates and would like to lock in the rate on the September investment with T-bill futures contracts. Currently, September T-bill contracts are trading at 93 (IMM index).

a. What is the implied YTM on the September T-bill futures contract?

b. How many September contracts does Kendall need to lock in the implied futures YTM (assume perfect divisibility)?

c. Assuming the fund’s $18 million cash inflow comes at the same time as the September futures contract’s expiration, show how the fund’s futures-hedged T-bill purchase yields the same rate from an $18 million investment as the implied YTM on the futures. Evaluate at spot T-bill rates at the futures’

expiration of 6.5% and 8.5%.