Question

In March, a bank short-term investment manager has $1 million in 90 day Tbills on its balance sheet that it plans to sell in June for liquidity purposes, and is worried about interest rates rising (i.e. prices falling) in the next few months, which would cause the value of the T-bills to fall. The current (spot) discount yield is 1.10% (i.e. a Discount % price of 98.90%) for a 90-day T-bill.

a. What is the price for the $ 1 million of T-bills in dollars?

T-bill Price in Dollars ________        

b. On the CME Group website, a June Eurodollar Futures contract gives a price of 98.10% (i.e., a discount yield of 1.90%) for a $1 million, 90 day Eurodollar Futures contract. b. What is the contract price for the Eurodollar Futures Contract in dollars?               

Eurodollar Futures Price in Dollars ______________

What type of Eurodollar futures contract should be purchased (long or short)? Explain why.   

Long or Short _______    Why?_______________________                    

c. Suppose in June the T-bill discount yield goes up by 20 basis points to 1.30%, and the Eurodollar Futures yield goes up by 25 basis points to 2.15%, what is the new dollar price for the 1 mil. T-bills, and what is the new contract dollar price for the Eurodollar Futures Contract?

New T-bill Price in Dollars _______________

New Eurodollar Futures Price in Dollars ____________

Answer 1