Ms. Hunter is a money market manager. In July, she anticipates needing cash in September that she
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Ms. Hunter is a money market manager. In July, she anticipates needing cash in September that she plans to obtain by selling 10 $1 million face-value T-bills she currently holds. At the time of the anticipated September sale, the T-bills will have a maturity of 91 days. Suppose there is a September T-bill futures contract trading a discount yield of RD = 6%.
a. If Ms. Hunter is fearful that short-term interest rates could increase, how could she lock in the selling price on her T-bills?
b. Show in a table Ms. Hunter’s net revenue at the futures’ expiration date from closing the futures position and selling her 10 T-bills at possible discount yields of 5%, 6%, and 7%. Assume no quality, quantity, or timing risk.
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