Question: On April 1, the one-month LIBOR rate is 0.11038%, and the two-month LIBOR rate is 0.14838%. The 30-day May Fed Funds rate futures contract is

On April 1, the one-month LIBOR rate is 0.11038%, and the two-month LIBOR rate is 0.14838%. The 30-day May Fed Funds rate futures contract is quoting at 99.90. You think there might be an arbitrage play based upon the likelihood of rising interest rates in the near-term. You will use one $5,000,000 contract.

Now, suppose that on May 1, the one-month LIBOR has risen (as you suspected), and it now stands at 0.20255%. Rounded to the nearest cent, the present value at May 1 of the two-month loan you made is now $____. [Hint: This will be slightly less than five million.]

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Q:

On April 1, the one-month LIBOR rate is 0.11038%, and the two-month LIBOR rate is 0.14838%. The 30-day May Fed Funds rate futures contract is quoting at 99.90. You think there might be an arbitrage...

Q:

On April 1, the one-month LIBOR rate is 0.11038%, and the two-month LIBOR rate is 0.14838%. The 30-day May Fed Funds rate futures contract is quoting at 99.90. You think there might be an arbitrage...

Q:

On April 1, the one-month LIBOR rate is 0.11038%, and the two-month LIBOR rate is 0.14838%. The 30-day May Fed Funds rate futures contract is quoting at 99.90. You think there might be an arbitrage...

Q:

On April 1, the one-month LIBOR rate is 0.11038%, and the two-month LIBOR rate is 0.14838%. The 30-day May Fed Funds rate futures contract is quoting at 99.90. You think there might be an arbitrage...

Q:

On November 1, the one-month T-bill rate is 5.0% and the two-month T-bill is 6.0%. Assume that fed funds futures contracts trade at a 25 basis point rate under one- month T-bill rate at the start of...

Q:

On January 1, the one-month LIBOR rate is 4% and the two-month LIBOR rate is 5%. The February fed funds futures is quoted at 94.50. Assume the use of a signle $5,000,000 futures contract. a) What is...

Q:

On November 1, the one-month T-bill rate is 5.0% and the two-month T-bill is 6.0%. Assume that fed funds futures contracts trade at a 25 basis point rate under one-month T-bill rate at the start of...

Q:

On November 1, the one-month T-bill rate is 5.0% and the two-month T-bill is 6.0%. Assume that fed funds futures contracts trade at a 25 basis point rate under one-month T-bill rate at the start of...

Q:

On January 1, the one-month LIBOR rate is 5% and the two-month LIBOR rate is 6%. The February fed funds futures is quoted at 93.50. Assume the use of a single $5,000,000 futures contract. a What is...

Q:

On June 1, the one-month LIBOR rate is 4.25%, and the two-month LIBOR rate is 5.50%. The 30-day July Fed Funds rate futures contract is quoting at 95.10. You think there might be an arbitrage play...

Q:

How can I become a programming tutor?

Q:

Donna loves the Seahawks! She has a budget of $45 per month, which she can spend on Seahawks gadgetry at $5 a piece or on tickets to an autograph signing of Bobby Wagner, KJ Wright or Russell Wilson...

Q:

Which of these are characteristics of a flexible financing policy? Select all that apply. Multiple select question. Periodic investments in marketable securities Periodic short - term financing...

Q:

Sweeten Company had no jobs in progress at the beginning of March and no beginning inventories. The company has two manufacturing departmentsMolding and Fabrication. It started, completed, and sold...