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.
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.