You plan to borrow $1,000,000 for six months (183 days) in six months' time (182 days). The current Libor rate for six months is 6%. You want to hedge your interest-rate exposure by using 90-day eurodollar futures contracts that mature in six months. Using PVBP analysis, how 90-day eurodollar futures contracts are needed for this hedge?

Question

Quizplus · Accepted Answer

The PVBP (Price Value of a Basis Point) analysis involves calculating the change in the value of the loan for a 1 basis point change in interest rates and matching it with the change in the value of the futures contract. The correct number of contracts is approximately 1.92.

You Plan to Borrow $1,000,000 for Six Months (183 Days)