A business intends to use 90-day bank- accepted bill futures to hedge the interest rate risk resulting from its plans to borrow approximately $40 million using the issue of commercial paper in three months. The yield on commercial paper is currently 6.68% p.a. and the 90-day bank-accepted bill futures are currently priced at 95.35. The effective cost of funds if, in three months time the yield on commercial paper is 7.1% p.a. and the 90-day bank-accepted bill futures contract is priced at 94.10, is % p.a. (rounded to two decimal places)

A business intends to use 90-day bank- accepted bill futures to hedge the interest rate risk resulting from its plans to borrow approximately $40 million using the issue of commercial paper in three months. The yield on commercial paper is currently 6.68% p.a. and the 90-day bank-accepted bill futures are currently priced at 95.35. The effective cost of funds if, in three months time the yield on commercial paper is 7.1% p.a. and the 90-day bank-accepted bill futures contract is priced at 94.10, is % p.a. (rounded to two decimal places)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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