What is the value of your futures position on monday

Assignment Help Financial Management

Reference no: EM131916108

1.Suppose that today is Monday, February 20^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 24th. 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 20th.

a.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)?

b.What is the value of your futures position on Monday, February 20th?

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

d.What is the interest rate payment that you have to make on Friday, February 24th, on your $10,000,000 loan?

e.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: 02/21/2017 (Tuesday)

Month	Open	High	Low	Last	Change	Settle	Estimated Volume	Prior Day Open Interest
MAR 17	98.9100	98.9100	98.8900	98.8925	-.0150	98.8925	209,749	1,390,009
APR 17	98.8450	98.8450	98.8250	98.8250	-.0150	98.8250	11,559	129,757
MAY 17	98.7700	98.7700	98.7600	98.7650	-.0200	98.7650	1,781	44,469
JUN 17	98.7300	98.7350	98.7000	98.7050	-.0200	98.7100	260,830	1,525,881
JLY 17	-	-	98.6750A	98.6750A	-.0250	98.6750	0	2,849

Daily Settlements for Eurodollar Futures (FINAL)Trade Date: 02/23/2017 (Thursday)

Month	Open	High	Low	Last	Change	Settle	Estimated Volume	Prior Day Open Interest
MAR 17	98.9025	98.9125	98.8975	98.9075	UNCH	98.9050	245,766	1,395,228
APR 17	98.8300	98.8450	98.8300	98.8450	+.0050	98.8400	19,813	141,194
MAY 17	98.7750	98.7900	98.7750	98.7900B	+.0050	98.7850	15,191	46,135
JUN 17	98.7200	98.7450	98.7150	98.7450	+.0150	98.7400	428,926	1,524,849
JLY 17	-	98.7050B	-	98.7050B	+.0150	98.7000	13	3,532

Daily Settlements for Eurodollar Futures (FINAL)Trade Date: 02/24/2017 (Friday)

Month	Open	High	Low	Last	Change	Settle	Estimated Volume	Prior Day Open Interest
MAR 17	98.9075	98.9175	98.9000	98.9075	+.0025	98.9075	314,150	1,398,987
APR 17	98.8400	98.8550	98.8400	98.8500	+.0100	98.8500	11,765	140,678
MAY 17	98.7900	98.8050	98.7850	98.7950	+.0150	98.8000	5,012	52,526
JUN 17	98.7400	98.7600	98.7350	98.7550	+.0100	98.7500	308,236	1,511,995
JLY 17	-	98.7200B	-	98.7200B	+.0200	98.7200	0	3,532

3-month LIBOR rate:

February 20, 2017 1.05233

February 21, 2017 1.05011

February 22, 2017 1.05344

February 23, 2017 1.05400

February 24, 2017 1.05233

Reference no: EM131916108

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