Suppose it is currently May 23, 2008, and your firm will need to borrow $100 million...
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Suppose it is currently May 23, 2008, and your firm will need to borrow $100 million on June 19 until October 5. You can borrow at the prevailing 90-day LIBOR plus 150 basis points. The current June Eurodollar futures price is 90.65. Assume that all funds are received immediately. • Construct a hedge that will lock in your borrowing rate. What is the appropriate hedge ratio? • Suppose the 90-day LIBOR is either 7% or 10% on June 19. Show your net interest cost under both scenarios. Intuitively, why do you get this result? Suppose it is currently May 23, 2008, and your firm will need to borrow $100 million on June 19 until October 5. You can borrow at the prevailing 90-day LIBOR plus 150 basis points. The current June Eurodollar futures price is 90.65. Assume that all funds are received immediately. • Construct a hedge that will lock in your borrowing rate. What is the appropriate hedge ratio? • Suppose the 90-day LIBOR is either 7% or 10% on June 19. Show your net interest cost under both scenarios. Intuitively, why do you get this result?
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Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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