Use the information and data from Problem 20.5. 

a. Create a hedge with the futures contract for Zinn Company's planned June debt offering of $10 million. What is the implied yield on the bond underlying the futures contract? 

b. Suppose interest rates fall by 300 basis points. What are the dollar savings from issuing the debt at the new interest rate? What is the dollar change in value of the futures position? What is the total dollar value change of the hedged position?

c. Create a graph showing the effectiveness of the hedge if the change in interest rates, in basis points, is: - 300, - 200, - 100, 0, 100, 200, or 300. Show the dollar cost (or savings) from issuing the debt at the new interest rates, the dollar change in value of the futures position, and the total dollar value change.

Data from Problem 20.5:

Zinn Company plans to issue $10,000,000 of 10-year bonds in June to help finance a new research and development laboratory. The bonds will pay interest semiannually. It is now November, and the current cost of debt to the high-risk biotech company is 9%. However, the firm's financial manager is concerned that interest rates will climb even higher in coming months. The following data are available: 

Futures Prices: Government of Canada Bonds-$100,000; Price in%

Delivery Month..........................................Price

Dec ..................................................................102.16

Mar................................................................... 102.78

June ................................................................. 102.53