Michelle's active cash flow management revealed a short term investment opportunity in the next 30 days. She
Question:
Michelle's active cash flow management revealed a short term investment opportunity in the next 30 days. She will have $3 Million excess cash for a period of 60 days. She is planning to invest in a 60-day Commercial Paper issue by a fortune 500 firm. She is risk averse and planning to buy Treasury bill futures for hedging any associated interest rate risk.
(Margin requirement per contract = $20000 and discount rate is 10%, Commission per contract = 60)
(Face Value of each contract: $1M)
Estimate the net hedge position.
Interest Rates:
Today:
60-day Commercial Paper: 1.50%; 60-day Treasury Bills: 1.25%
30-days from now:
60-day Commercial Paper: 1.80%; 60-day Treasury Bills: 1.53%
Fundamentals Of Corporate Finance
ISBN: 9780135811603
5th Edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford