Lothbrok Industries has finalized plans for the disposal (sell) of one of their warehouse facility. In 6 months, the company will receive $3 million. The Treasurer intends to invest the $3 million in Canadian Government bonds (10-year). The CFO is concerned that interest rates may decline over the next 6 months.

Should Lothbrok buy or sell bond futures contracts, to protect against declining interest rates, and what type of hedge is this called? No calculations required. No explanation required.

Question 2

Today, the CGB bond futures contract is valued at 131.80. Based on question 20, how many contracts should the company buy or sell? Calculations required.

Question 3

If in 6 months time, the CGB bond futures contract is valued at 139.80 (instead of 131.80 previously ? question 21), did interest rates increase or decrease? No calculations required. Briefly explain.

Question 4

Refer to information provided in questions 20, 21 and 22. Did Lothbrok make a profit or loss on their futures position? Would Lothbrok have done any better or worse overall financially if the CGB bond futures contract had gone down in value the same amount? No calculations required. Briefly explain.

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Lothbrok Industries Ltd. Income Statement (millions Canadian Dollars) Revenue Cost Of Goods Sold Gross Profit Selling General & Admin Expense Depreciation Operating Income Interest Expense Earnings Before Tax Income Tax Expense Net Income Per Share Items EPS Common Shares Outstanding (millions) Dividends per Share 2018 259 150 109 68 8 33 3 30 8 22 0.51 43.5 $0.14 2019 270 153 117 74 11 32 6 26 8 18 $0.41 44.1 $0.15 Lothbrok Industries Ltd. Balance Sheet, (millions Canadian Dollars) ASSETS Cash And Equivalents Accounts Receivable Inventory Prepaid Expense Total Current Assets Gross Property, Plant & Equipment Accumulated Depreciation Net Property, Plant & Equipment Other Non-operating Assets Total Assets LIABILITIES Accounts Payable Accrued Expense Short-term Debt Other Current Liabilities Total Current Liabilities Long-Term Debt Other Non-Current Liabilities Total Liabilities Total Equity Total Liabilities And Equity 2018 21 116 3 140 230 (88.3) 142 50 332 25 8 27 10 70 76 19 165 167 332 2019 21 120 4 145 244 (86) 158 52 355 26 37 14 77 70 26 173 182 355 Lothbrok Industries Ltd. Income Statement (millions Canadian Dollars) Revenue Cost Of Goods Sold Gross Profit Selling General & Admin Expense Depreciation Operating Income Interest Expense Earnings Before Tax Income Tax Expense Net Income Per Share Items EPS Common Shares Outstanding (millions) Dividends per Share 2018 259 150 109 68 8 33 3 30 8 22 0.51 43.5 $0.14 2019 270 153 117 74 11 32 6 26 8 18 $0.41 44.1 $0.15 Lothbrok Industries Ltd. Balance Sheet, (millions Canadian Dollars) ASSETS Cash And Equivalents Accounts Receivable Inventory Prepaid Expense Total Current Assets Gross Property, Plant & Equipment Accumulated Depreciation Net Property, Plant & Equipment Other Non-operating Assets Total Assets LIABILITIES Accounts Payable Accrued Expense Short-term Debt Other Current Liabilities Total Current Liabilities Long-Term Debt Other Non-Current Liabilities Total Liabilities Total Equity Total Liabilities And Equity 2018 21 116 3 140 230 (88.3) 142 50 332 25 8 27 10 70 76 19 165 167 332 2019 21 120 4 145 244 (86) 158 52 355 26 37 14 77 70 26 173 182 355

Answer rating: 100% (QA)

1 T rtet ginst future investments interest rte the mny shuld buy the Bnd fut... View the full answer