(a) Assume that it is now 1 May 2023. Jacinda plc will need to invest £5 million for an 18-monthperiod from 1 June 2023. The current spot interest rate is 4.5% p.a. The CFO of Jacinda plcwants to protect the company from interest rate falling below 4% p.a. and would like to usetraded interest rate options on three-month sterling futures. Information regarding these optionson futures (standard size £500,000) is available on 1 May 2023 as in the table below (premiumsin annual % terms):Strike price June0.1995.0095.5096.000.110.09CallsSeptember0.260.140.11December June0.090.210.410.320.190.13PutsSeptember0.940.760.55December1.17(i) The spot rate is 5.25% p.a., and the futures price is 94.60.(ii) The spot rate is 3.75% p.a., and the futures price is 96.85.0.980.77Identify the most suitable interest rate option to hedge the company's interest rate exposure inthis situation, and calculate the effective annual interest rate achieved if, on 1 June 2023:

To protect the company from interest rate falling below 4% p.a., the most suitable interest rate…

Answered: June 2023 otect the com

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

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