Midland Chemical Co. Is Negotiating A Loan From Manhattan Bank And Trust. The?


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In order to hedge against the possible rate increase described in part e, Midland
decides to hedge its position in the futures market. Assume it sells $500,000
worth of 12-month futures contracts on Treasury bonds. One year later, interest
rates go up 2 percent across the board and the Treasury bond futures have gone
down to $488,000. Has the firm effectively hedged the 2 percent increase in
interest rates on the bank loan as described in part e? Determine the answer in
dollar amounts.

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