Th e current credit spread on bonds issued by Great Foods Inc. is 300 bps. Th e manager of More Money Funds believes that Great Foods’ credit situation will improve over the next few months, resulting in a smaller credit spread on its bonds. She decides to enter into a six-month credit spread forward contract taking the position that the credit spread will decrease. Th e forward contract has the current spread as the contracted spread, a notional amount of $10 million, and a risk factor of 5.

A . On the settlement date six months later, the credit spread on Great Foods bonds is 250 bps. How much is the payoff to More Money Funds?

B . How much would the payoff to More Money Funds be if the credit spread on the settlement date is 350 bps?

C . How much is the maximum possible gain for More Money Funds?