Question 2 Interest Rate hedging

Badge Ltd needs to borrow 4.1m for 9 months commencing in six months time. It wants to use hedging tools to protect against increases in interest rates. Further information (shown below) has been gathered to hedge the interest rate risk between now and when the 4.1m is to be borrowed.

S_o 3.5%

S_6months 4.25%

Futures Price 96.31 (Current) 95.74 (In 6 months time)

(Underlying bond size of the futures contract is 150k)

Option prices 0.17%/ (Call Option with K = 3.85%)

0.08%/ (Put Option with K = 3.45%)

1. With the benefit of hindsight which hedge should Badge Ltd have taken (show all workings required to come to your conclusion)?