What are the risks of not hedging

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Reference no: EM13273057

It is January, and Tennessee Sunshine is considering issuing $5 million in bonds in June to raise capital for an expansion. Currently, the firm can issue 20 year T-bonds with a 7% coupon (with interest paid semiannually), but interest rates are on the rise and Stooksbury is concerned that long-term interest rates might rise as much as 1% before June. You looked online and found that June T-bond future psi are trading at 111'25. What are the risks of not hedging, and how might TS hedge this exposure? In your analysis, consider what would happen if interest rates all increased by 1%.

Reference no: EM13273057

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