Homework Sourse1 suppose we wish to borrow 40000000 for 91 days at LIBOR be
1) suppose we wish to borrow $40,000,000 for 91 days at LIBOR beginning next December, and that the quoted Eurodollar futures price (based on a 360-day year) is 93.47. How much will be needed to repay the loan?
$40,660,256
$42,612,000
$41,320,511
$42,794,480
$40,846,181
2)
Suppose we wish to borrow $6,000,000 for 91 days at LIBOR beginning next March. In this case, we might want to hedge against a potential ______ in interest rates between now and March by taking a _____ position in Eurodollar futures
decrease ... long
increase ... short
decrease ... short
increase ... long
| 1) suppose we wish to borrow $40,000,000 for 91 days at LIBOR beginning next December, and that the quoted Eurodollar futures price (based on a 360-day year) is 93.47. How much will be needed to repay the loan? | ||||||||||||
2) |
Solution
1) Answer : a. $40,660,256
=> Libor increase in interest rate for 91 days= (100 - 93.47) * 91 / 360 = 1.650638808%
Interest after the 91 days = 40000000 * (100 + 1.650638808) % = $40660255.52 or 40660256
2) Answer : d. increase ... long
=> This is because any increase in the Libor rate will be cared off by taking a long position and square-up the long position when payment has to made at the end of 91 days.
