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On June 19 (which is a Thursday following the third Monday of June) a corporation has $1,000,000 to invest for a three month period. The bank discount rate for the cash U.S. T-Bills for that day are quoted as: MATURITY BANK DISCOUNT RATE 90 days 8 % 180 days 12 % 270 days 15 % On June 19, in addition to the cash bill figures given above, the IMM futures prices were: CONTRACT IMM FUTURES PRICE SEPTEMBER DECEMBER MARCH (following year) Answer questions 14 - 16 assuming that the required cash bill is deliverable into the T-Bill futures contract on the Thursday following the third Monday of the delivery month. Also assume the one year T-Bill is not deliverable into the futures contract regardless of the number of days it has remaining to maturity. 95 96 14. Which of these futures contracts could be used in conjunction with the appropriate cash bills to lock in a 3-month return from 6/19 to 9/18? 2. Only the September futures contract b. Only the December futures contract C. Both the September and December futures contracts d. Either the September, December or March futures contracts 15. What positions could be taken now (6/19) to lock in this return? a. Long the September futures and buy the 90 day cash bill b. Short the September futures and buy the 180 day cash bill C. Short the Sept or Dec futures and buy the 180 or 270 day cash bill d. Long the September, December or March futures contract along with the appropriate cash bill 16. What is the highest 3-month holding period rate of return that can be obtained using the scheme of question 15? a. 2.04% b. 4.26% c. 4.79% d. 5.92% e. 6.75%

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