Should they buy or sell the interest rate futures contract

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Reference no: EM131512023

As a financial advisor, you have been provided with the following information. Holden, the Australian car manufacturer, must pay a floating rate interest payment 90 days from now. It wants to lock in these interest payments using interest rate futures contracts. Interest rate futures for 90 days from now settled at 96.77, for a yield of 3.23% per annum. The company management has the following requests: i. Should they buy or sell the interest rate futures contract? ii. If the floating interest rate 90 days from now is 3%, would they gain or lose? iii. If the floating interest rate 90 days from now is 3.5%, would they gain or lose? In answering the question above, start with these assumptions: Assumption Value Future price 96.77 Yield 3.23 Notional principal $1,000,000

Reference no: EM131512023

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