Suppose Ms. Hunter anticipates a cash inflow of $9.875 million in September that she plans to invest
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Suppose Ms. Hunter anticipates a cash inflow of $9.875 million in September that she plans to invest in 10 $1million face-value T-bills with a maturity of 91 days. Suppose there is a September T-bill futures contract trading at a discount yield of RD = 5%.
a. If Ms. Hunter is fearful that short-term interest rates could decrease, how could she lock in the purchase price on her T-bills?
b. Show in a table Ms. Hunter’s net costs at the futures’ expiration date from closing the futures position and buying her 10 T-bills at possible discount yields of 4%, 5%, and 6%. Assume no quality, quantity, or timing risk.
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