In February, a company wants to lock in the interest rate that will be earned for...

In February, a company wants to lock in the interest rate that will be earned for three months on a $9 million deposit to be made after seven months in September. The company decides to trade in Eurodollar futures and the September Eurodollar futures price is 98.50. Assume that in September the company closes out its position in the futures market when the LIBOR is 2.0% per annum and the futures price is 98.00. Assuming that the correct number of contracts were traded, what is the effective interest earned (in dollars) by the company on its deposit after taking into account the gain or loss in the futures market?

Expert Solution

Effective interest earned by the company is $ 22500 after the loss of $11250 in the future contract.

Refer the working below :-

jeff jeffy answered 1 year ago

You expect interest rates to continue to rise and you want to lock in the rate...

You expect interest rates to continue to rise and you want to lock in the rate you'll pay on a $50 million short-term loan you plan to take out at the beginning of the third quarter. You take a short position on the June Eurodollar contract, which settled at 97.775 today. Assume on June 18, when the contract expires, it settles at 97.545. Two weeks later you borrow the $50 million at the three-month LIBOR rate, which is at 2.468%....

If $300 is invested at a 4% interest rate, how much compound interest will be earned...

If $300 is invested at a 4% interest rate, how much compound interest will be earned in 4 years? (Round to the nearest cent and do not enter the dollar sign) Exactly how many quarters will it take to double: $40 at 1% per quarter (Round to two decimal places)

You have recently been given an opportunity to lock-in a 1% monthly interest rate on a...

You have recently been given an opportunity to lock-in a 1% monthly interest rate on a savings account. Which of the following options will yield you the highest amount of interest on your 1% interest payments after 12 months? A) Accumulate 1% a month as an annual percentage rate B) Accumulate 1% a month as an annual percentage appreciation C) Accumulate 1% a month as an annual percentage yield D) Accumulate 1% a month as an annual percentage growth

An investor uses 3-month Eurodollar futures contracts to lock in the rate of interest paid on...

An investor uses 3-month Eurodollar futures contracts to lock in the rate of interest paid on a $25 million floating rate note for the next nine months. Assume that Eurodollar futures contracts which mature in 3 months, 6 months and 9 months are traded. What should the investor do? Should the investor buy or sell contracts? How many contracts should the investor trade? Which maturities should the investor choose?

T F ] A Financial Manager wanting to lock-in a short-term interest rate would use a...

T F ] A Financial Manager wanting to lock-in a short-term interest rate would use a Future related to short-term rates, such as a Euro-dollar future. Going long would be locking in deposit rate, shorting would be a lending rate

Times-Interest-Earned Ratio The Morris Corporation has $700,000 of debt outstanding, and it pays an interest rate...

Times-Interest-Earned Ratio The Morris Corporation has $700,000 of debt outstanding, and it pays an interest rate of 10% annually. Morris's annual sales are $3.5 million, its average tax rate is 35%, and its net profit margin on sales is 3%. If the company does not maintain a TIE ratio of at least 5 to 1, then its bank will refuse to renew the loan, and bankruptcy will result. 1. What is Morris's TIE ratio? Do not round intermediate calculations. Round...

What interest rate (in percent) is earned on a $1,300 depositwhen $1,780 is paid back...

What interest rate (in percent) is earned on a $1,300 deposit when $1,780 is paid back in one year? (Round your answer to two decimal places.)

A company wants to approximate the 12% annual interest rate based on a 365-day year it...

A company wants to approximate the 12% annual interest rate based on a 365-day year it pays on its working capital loan. Which of the following terms should the company offer its customers? A) 2.00%, 15, net 45 B) 1.00%, 15, net 45 C) 0.75%, 10, net 30 D) 0.50%, 10, net 30Attribute

An individual invested $1,000 for one year and earned $45 in interest. What is the percentage of interest earned?

An individual invested $1,000 for one year and earned $45 in interest. What is the percentage of interest earned?A. 4.25%B. 4.5%C. neither A or B

what must have been the interest rate per annum if $32421780.75 is earned as the future...

what must have been the interest rate per annum if $32421780.75 is earned as the future value after investing $12500000 for five years at a bank compounded semiannually. please provide step by step working

Question