You expect your business would require a $5 million (face value) bank loan for 3 months, starting 3 months from now. Your banker offers a rate that will be the 3-month BBSW rate on that date. The current BBSW is 2.65% per annum. You expect interest rates to rise. You decide to use BAB futures to hedge against interest rate risk. The BAB future contracts are trading at 98.11. Suppose that 3 months after borrowing starts, the 3-month BBSW becomes 3.00% per annum. 

Calculate (i) the settlement amount on the BAB futures you have entered (face value $5 million), 

(ii) borrowing proceeds from the bank loan, 

(iii) the effective borrowing cost. For simplicity, assume 3 months = 90 days, and use 365 days in year convention

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  Select one:

  a. (i) $4,951,205.71 (ii)$3,748.22 (iii) 3.17%

  b. (i) $4,763,885.59 (ii)$4,041.19 (iii) 2.79%

  c. (i) $4,860,225.29 (ii)$3,949.19 (iii) 2.61%

  d. (i) $4,963,285.29 (ii)$3,647.19 (iii) 2.70%

  
  

Answer rating: 100% (QA)

The correct answer is d i 496328529 ii 364719 iii 270 Heres how to calculate each step i Settlement ... View the full answer