Question

Question 15 (1 point) You buy one Eurodollar JUL 2020 future, which is quoted at 98.5. What will be your profit if LIBOR at maturity is 2%. 0-$5k 0-$1.2k $1.2k O $5k Question 16 (1 point) Firm A wants to issue floating rate debt. Its options: T-bond + 30 bp (fixed) LIBOR +10bp (floating). Swap rates for LIBOR: T+ 25 bp (bid), T+ 30 bp (ask) A's lowest cost of capital is .... OL OL +10bp OL-5bp OL +5bp

Answer 1

1]

Eurodollar futures are quoted as 100 - R, where R is the 3-month LIBOR rate

If LIBOR at maturity is 2%, then the price of the Eurodollar future at maturity = 100 - 2 = 98

For a Eurodollar future, 1 interest rate basis point = 0.01 price points = $25 per contract.

Profit = (price at maturity - purchase price) * 100 * $25

Profit = (98 - 98.5) * 100 * $25

Profit = -$1250

The second option is correct