Question: Hedging- answer everything for bold sections Hedging Value of bond issue next June $10,000,000 Maturity of bond issue, in years 20 Frequency of interest paid

Hedging- answer everything for bold sections
Hedging
Value of bond issue next June $10,000,000
Maturity of bond issue, in years 20
Frequency of interest paid in year 2
Current annual interest (cost of debt), November 9.00%
Expected increase in interest rate in basis points 150
Increase in annual interest rate in percentage 1.50%
Maturity of hypothetical bond in futures contract 20
Annual coupon rate of hypothetical bond in futures contract 6.00%
Futures Prices: Treasury Bonds $100,000 Pts. 32nds of 100%
"Delivery Month (1)" "Open (2)" "High (3)" "Low (4)" "Settle (5)" "Change (6)" "Open Interest (7)"
Dec 94'28 95'13 94'22 95'05 +0'07 591,944
Mar 96'03 96'03 95'13 95'25 +0'08 120,353
June 95'03 95'17 95'03 95'17 +0'08 13,597
To protect from rising interest rates, firm must sell futures contracts
Whole percentage of quote 95
32nds of 100% of quote 17
Formulas
Value of 1 futures contract #N/A
Number of futures contracts to sell (to the nearest whole) #N/A
Total value of futures contracts #N/A
Determination of how well hedge performed
Value of bond issue at increased interest rate #N/A
Loss on bond issue #N/A
Implied yield at time futures contract entered #N/A
Yield with increase in interest rates #N/A
Value of 1 futures contract #N/A
Total value of futures contracts #N/A
Profit on futures contracts, ignoring commissions #N/A
Net profit #N/A

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