90.2K

Verified Solution

Link Copied!

1. Suppose that today is Monday, February 18^th and you have a loan of $10,000,000 outstanding, on which you will have to make a floating-rate interest rate payment on Friday, February 22nd. The interest payment is determined based on a 3-month LIBOR rate on that day. You fear that in the next several days the rate might rise. So you hedge yourself by trading Eurodollar futures. Assume that you enter into the position at close of day on Monday, February 18th.

1. In order to hedge yourself, which position in Eurodollar futures will you take (i.e. buy or sell, contract maturity, and the number of contracts)?

2. What is the value of your futures position on Monday, February 18th?

3. What is your daily gain or loss on your futures position (on Tuesday, Wednesday, Thursday, and Friday)?

4. What is the interest rate payment that you have to make on Friday, February 22nd, on your $10,000,000 loan?

5. What is the net cost to you, taking into account the gains/losses on your hedge, plus the interest payment on the loan (ignore the time value of money)?

Daily Settlements for Eurodollar Futures (FINAL)Trade Date: 02/19/2019 (Tuesday)

Month	Open	High	Low	Last	Change	Settle	Estimated Volume	Prior Day Open Interest
MAR 19	97.3600	97.3950	97.3575	97.3900	+.0275	97.3875	395,721	1,394,727
APR 19	97.3650	97.3950	97.3650	97.3950	+.0300	97.3900	28,185	111,624
MAY 19	97.3650	97.4000	97.3650	97.4000	+.0250	97.3950	15,871	56,066
JUN 19	97.3600	97.3950	97.3550	97.3900	+.0250	97.3850	320,119	1,235,961
JLY 19	-	97.3900B	-	97.3900B	+.0250	97.3850	0	8,694

Daily Settlements for Eurodollar Futures (FINAL)Trade Date: 02/21/2019 (Thursday)

Month	Open	High	Low	Last	Change	Settle	Estimated Volume	Prior Day Open Interest
MAR 19	97.3975	97.3975	97.3900	97.3925	-.0025	97.3950	184,835	1,392,033
APR 19	97.4000	97.4000	97.3900	97.3950	-.0050	97.3950	15,913	131,887
MAY 19	97.4000	97.4050	97.3950	97.4000	-.0100	97.3950	3,448	57,261
JUN 19	97.4000	97.4050	97.3850	97.3900	-.0100	97.3900	215,891	1,250,627
JLY 19	97.4000	97.4000	97.3900	97.3900	-.0100	97.3900	834	9,615

Daily Settlements for Eurodollar Futures (FINAL)Trade Date: 02/22/2019 (Friday)

Month	Open	High	Low	Last	Change	Settle	Estimated Volume	Prior Day Open Interest
MAR 19	97.3925	97.4000	97.3900	97.3925	-.0025	97.3925	228,709	1,393,211
APR 19	97.3950	97.4000	97.3900	97.3950	UNCH	97.3950	10,618	139,003
MAY 19	97.4000	97.4050	97.3950	97.4000	+.0050	97.4000	10,365	58,276
JUN 19	97.3950	97.4050	97.3850	97.3950	+.0050	97.3950	233,695	1,262,086
JLY 19	97.3950	97.4050	97.3950	97.4050	+.0150	97.4050	586	9,585

3-month LIBOR rate:

February 18, 2019 2.68288

February 19, 2019 2.64363

February 20, 2019 2.64125

February 21, 2019 2.66338

February 22, 2019 2.65100

Answer & Explanation Solved by verified expert

See Answer