【文章內(nèi)容簡介】 $, you would take a short position in futures since the futures price of $ is greater than your expected spot price.Your anticipated profit from a short position in three contracts is: 3 x ($ $) x MP500,000 = $20,.If the futures price is an unbiased predictor of the future spot price and this price materializes, you will not profit or lose from your long futures position.6. George Johnson is considering a possible sixmonth $100 million LIBORbased, floatingrate bank loan to fund a project at terms shown in the table below. Johnson fears a possible rise in the LIBOR rate by December and wants to use the December Eurodollar futures contract to hedge this risk. The contract expires December 20, 1999, has a US$ 1 million contract size, and a discount yield of percent.Johnson will ignore the cash flow implications of marking to market, initial margin requirements, and any timing mismatch between exchangetraded futures contract cash flows and the interest payments due in March.Loan Terms September 20, 1999 December 20, 1999 March 20, 2000 Borrow $100 million at Pay interest for first three Pay back principal September 20 LIBOR + 200 months plus interest basis points (bps) Roll loan over at September 20 LIBOR = 7% December 20 LIBOR + 200 bps Loan First loan payment (9%) Second payment initiated and futures contract expires and principal 175。 175。 175。 9/20/99 12/20/99 3/20/00a. Formulate Johnson’s September 20 floatingtofixedrate strategy using the Eurodollar future contracts discussed in the text above. Show that this strategy would result in a fixedrate loan, assuming an increase in the LIBOR rate to percent by December 20, which remains at percent through March 20. Show all calculations.Johnson is considering a 12month loan as an alternative. This approach will result in two additional uncertain cash flows, as follows: Loan First Second Third Fourth payment initiated payment (9%) payment payment and principal 175。 175。 175。 175。 175。 9/20/99 12/20/99 3/20/00 6/20/00 9/20/00b. Describe the strip hedge that Johnson could use and explain how it hedges the 12month loan (specify number of contracts). No calculations are needed.CFA Guideline Answera. The basis point value (BPV) of a Eurodollar futures contract can be found by substituting the contract specifications into the following money market relationship: BPV FUT = Change in Value = (face value) x (days to maturity / 360) x (change in yield) = ($1 million) x (90 / 360) x (.0001) = $25The number of contract, N, can be found by: N = (BPV spot) / (BPV futures) = ($2,500) / ($25) = 100 OR N = (value of spot position) / (face value of each futures contract) = ($100 million) / ($1 million) = 100 OR N = (value of spot position) / (value of futures position) = ($100,000,000) / ($981,750) where value of futures position = $1,000,000 x [1 – ( / 4)] 187。 102 contractsTherefore on September 20, Johnson would sell 100 (or 102) December Eurodollar futures contracts at the percent yield. The implied LIBOR rate in December is percent as indicated by the December Eurofutures discount yield of percent. Thus a borrowing rate of percent ( percent + 200 basis points) can be locked in if the hedge is correctly implemented.A rise in the rate to percent represents a 50 basis point (bp) increase over the implied LIBOR rate. For a 50 basis point increase in LIBOR, the cash flow on the short futures position is: = ($25 per basis point per contract) x 50 bp x 100 contracts = $125,000.However, the cash flow on the floating rate liability is: = x ($100,000,000 / 4) = $2,450,000.Combining the cash flow from the hedge with the cash flow from the loan results in a net outflow of $2,325,000, which translates into an annual rate of percent: = ($2,325,000 x 4) / $100,000,000 = This is precisely the implied borrowing rate that Johnson locked in on September 20. Regardless of the LIBOR rate on December 20, the net cash outflow will be $