It is now March, and the current cost of debt for Wansley Construction is 12%. Wansley plans to issue $5 million in 20-year bonds (with coupons paid semiannually) in September, but is afraid that rates will climb even higher before then. The following data are available:

Futures Prices: Treasury Bonds—$100,000; Pts. 32nds of 100%

a. What is the implied interest rate on the September contract?
b. Construct a hedge for Wansley.
c. Assume all interest rates rise by 1 percentage point. What is the dollar value of Wansley’s increased cost of issuing debt? What is Wansley’s gain from the futures contract?

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Delivery Month (1) Mar June Sept Open (2) 96-28 98-03 97-03 High (3) 97-13 98-03 97-17 Low (4) 97-22 97-13 97-03 Settle (5) 98-05 97-25 97-13 Change (6) +7 +8 +8